Ther initial GDPNow forecast for the second-quarter GDP was 4.3% on May 1. On May 4, the forecast was 4.2%.
Following the jobs report that mainstream media was crowing about, the forecast fell to 3.7%.
On May 9, following the wholesale trade report, the forecast slipped slightly to 3.6%.
Is another plunge in store?
It’s not surprising to see the dive from 4.3% to 3.6%. However, I was surprised to see the biggest plunge was following the jobs report. I have an open question into GDPNow creator Pat Higgins regarding the jobs report.
Friday morning, the CPI report and retail sales numbers will be posted. Economists expect a huge rebound in retail sales. I don’t, but what matters is not the report itself but the report vs. what the models expect.
That is much tougher to game, but I will take a stab in advance.
The PPI report on Thursday was hot and it will likely subtract from GDP (See PPI Uneven Jump Hints at More Consumer Weakness, Trouble at Retailers). The CPI is likely to be an upward surprise as well. If so, both will subtract from GDP.
On Wednesday, I noted Import Prices Surge vs Export Prices: Bad News for GDP Forecasts.
Excluding Friday’s retail sales report, I see another 0.4 to 0.5 percentage point decline in the model forecast. Again I am gaming the model as the reports were awful. If the models expected awful, then we could even see an uptick despite poor reports.
Finally, I expect economists overestimate the bounce in retail sales, but I have no idea what the model expects. To take a stab, I suspect the model will be disappointed to the tune of 0.2 percentage points.
If I am on track, the GDPNow forecast will dive another 0.4 to 0.7 percentage points on Friday.
These kinds of estimates can make one look silly because I am not only estimating the forecast but the model’s expectations of the forecast as well.
Mike “Mish” Shedlock
Germany is rocking. Export and domestic. 0.6% qtrly growth. Weather helped apparently – construction – not the super low interest rates feeding through. Go figure.
Always blame the weather, whether good or bad.
It will help globally until any slowdown in North America and UK feeds through in reduced import demand from German export machine.
This will bolster EU as French unemployment has fallen too.
It might give some food for thought to Trump’s team if x-rate is thought to benefit Germany as US slowdown.
UK will hit buffers later this year domestically. Consumers squeezed.
Tim Wallace said:
Considering all the numbers we are hearing from our retail customers, I don’t see how anyone can expect good numbers out of retail. But stranger things have been known to happen when the government issues a “report”.
Victor Adam Smith said:
Ever increasingly larger amounts of the real economy are off the official “retail” radar now I believe………..
We all paid our $2,500 ObamaCare penalty. Feeling flush? And if my man Trump had shot Comey on camera I would not convict.
Much of GDP stats are nonsensical nowadays. Bankers print service inflation, adjust service inflation by the imaginary rent that homeowners don’t pay to themselves, and claim inflation is additional GDP. Add in Keynesian pyramids that bankers trick businesses into building by manipulating prices, and it becomes almost impossible to figure out how much useful GDP actually exists.
Switching to a service economy is substantially another way of saying that people are going back to doing things manually, instead of by machine. This makes service inflation important to GDP stats.
It seems that GDP is close to doubling from the first quarter. It appears to be headed upward. Is that right?
I stopped “trusting” GDP predictions and modeling back about 2000 when the “Service Economy” was heralded as the next prime mover. Technology was the force behind service and we would all be service workers in the economically developed world while the secondary world made “stuff”. But service is not something one can stock on a shelf. No one goes to the store to purchase a box of service nor does it have a good by date stamped on it. It is only created at the time of need. The old radio and television repair service was only used when the sets broke down. Maybe they blew a diode or a tube transistor and then the service man would be engaged in replacing them. Many of us could pull the tubes, take them down to a store, and test each one on a tube tester. Then we bought the replacement and went back home, inserting all the tubes into their respective sockets. I could always buy a bunch of spare tubes but I still have to go to the store to test them. The tubes are a physical product, going to the store is not. Nor is the serviceman waiting for his call to repair a set a physical “Thing” unless one wants to get metaphysical.
So now we have all this social media which is merely a service. I have not heard about any plans from Facebook to stock the local store shelves with their social media “Service”. Yet by all accounts the supposed value of these social media services whether they have or have not been rendered, are accounted for in the GDP simply because money has changed hands. Valuing “potential” service is akin to valuing forward looking income and P/E. They ain’t chickens till their hatched. We may make any number of assumptions and many of them may be correct, but never all of them. So I don’t count my GDP eggs before their’re hatched.
This demonstrates how the economy is increasingly becoming a social construct, once the need for direct physical input is greatly reduced. My view is that the technological boon should encourage much greater independence, but it does not seem to be going that way. Maybe people prime position in society as the symbol of success, or maybe they just want to hang out where it is happening, or maybe even they like the feeling of least resistance always, of taking part in what is there instead of creating something new, as there seems no greater necessity present to warrant the effort, or because independence is strongly discouraged at a certain point. This is all very nice.
However this means that the flow of money becomes very whimsical. That is to say, a society that has already rewarded itself and lives in debt becomes completely reliant on this social economy, and is completely vulnerable to interruption and manipulation, which is easy due to the relative expendability of its components.
So the bigger question is whether it might actually naturally formulate itself into an efficient but relatively non-productive at individual level ‘celebration’ of achievements that surpasses the drudgery associated with traditional work by harvesting the best any groupthink might produce , or if it becomes a threshing machine that leaves too many without meaning, or if it simply implodes due to outright miscalculation and abuse.
It can probably do all of those at once, the experience depending on which layer of that society anyone occupies.
I fear you misunderstand economics. It used to be called political economy. Is it a social construct? Well, yes, in that a society of individuals engage in both individual and collective actions to secure the basic means of living, to wit: food, housing, clothing, basic education, employment, and the like. How can it not be a “social construct”? Sounds like something out of a sociology text book. Another science that isn’t a science.
Technology never “save” anything, economic or otherwise. Technology displaces, that is its job. A plow pulled by a pair of oxen with a long pole and a stick at right angles to that pole can create furrows for planting seed. Such a technology can replace a dozen men using sticks to create less uniform furrows. So now it takes only two men and a pair of oxen to do the work of twelve men. thus the labor of ten men has been displaced. Could the work of those ten men be used more productively? Possibly.
As for the drudgery of work, all work has its drudgery. I loved the craft work I learned as a young man. I loved the high tech work when I was a telecommunications and data engineer. I loved the research for the intellectual career I wanted as a man in my fifties. But all had their moments of drudgery, no occupation ever escapes that. That is the nature of work, all work. Too many individuals expect their chosen field of endeavor to be this perfect job where boredom is banished and all is overwhelmingly interesting and yada, yada, yada. In real life this never happens. Too many individuals have an unreal expectation of life and work. and then to say that one’s layer of society has a direct effect upon one’s happiness with work, well, WTF. So now you equate some class level of employment with enjoyment or non enjoyment of some particular occupation as if there is some absolute value associated with it. I would greatly disagree. work can be a self fulfilling circle. that is, we either find enjoyment in what we do or we do not. It remains to the individual to find whatever satisfaction he or she can find in such endeavors. It is not intrinsic to the job, it is intrinsic in what attitudes we bring to the job that matters.
Well the very word economy is derived from Greek, if I am not wrong, and originates with the theme of household management, and its construct is therefore part social, part material ( as in ‘ if you don’t plough that field you get no supper, and I don’t care what you feel about that’) . Obviously the plough has saved being ordered about to the previous extreme, it has saved the amount of time and effort needed to avoid extinction, and so the allocation of produce becomes more refined by social law and hierarchy, that due to real participation becoming further disconnected from management – one sweats, not three or four.
As for the latter I agree, but look around you, people have sold their future to have now, to obtain without the hard work first. Naturally many are deceived, and many more are disappointed, but to top it off they find that they live under the beckons of a ‘resource’ called money, not to achieve further but to avoid losing all they think they own and more besides. Given the financialised nature of the economy, whether it be national banking attempting to maintain the flow of its accounts, or government aiming to keep its voter base and influence afloat, amongst other, the whole spectacle veers off into the surreal realm of multifaceted support and improvisation that does have its distinct classes and social stratification, ones that are becoming more distinct and less anchored to a basis that guarantees the maintenance of the system as a whole. The effects of that are experienced differently by the various classes, creating divergent aims, concerns, and results.
I don’t care what the root word is, it doesn’t matter. We are talking about human behavior, that is what an “economy” is even if the professors don’t quite get the point. It is human construct in that individuals actually engage in the act of trade. Trade being defines as a means to earn a medium called money which everyone accepts on faith and acts as a third party to barter. that is what money does, it facilitates barter by being the third party. You want to throw moralistic arguments that do not fit, have no relevance, and are blind to actual human behavior. I’m sorry that you do not understand these things. But that is your biased interpretation of life and to put it bluntly, it sucks. I don’t like saying that since you are otherwise a man of some education. I mean. WTF is the financialized nature of the economy? Did you simply string words together without thought? And since when was “money” a resource? I can’t begin to take you seriously, sorry, you make little sense. Then you want to throw in classes as though you are talking about class conflict like a Marxist. All I can say is that you know little about economics and still less about human behavior. I’m sure this plays well to some audiences and people might even believe you’re brilliant. But I keep thinking, WTF is this guy talking about and does he really believe his own words? No disrespect, but you have not shown me any more than a mish-mash of garbage. Take a good look at what you have written and parse it, examine its propositions, and ask if you have really reached any conclusions based upon any recognizable fact. Maybe I am so obtuse an not able to see your arguments and should be assigned to a home for the feeble minded. But I think not.
The initial trade in any economy is the contribution of self, that would be ploughing the field, even if it is for being able to plough tomorrow , a trade in itself. From there we step into trade, barter or monetized, at a social level. We are raised in a social setting, rarely do people step that far out on their own, that is to be solely in charge of their own survival, although that is also promoted during youth it is usually to be as part of the surrounding society, whatever kind it is.
The financialised nature of the economy refers to the creation of money through debt, frl being the most obvious. When a loan is created by this system the money supply increases at the loss of existing holders. It may be balanced by the newly created debt account wise, but that does not change the fact that money supply has been expanded, the borrower financed at the discretion of the banker beyond the existing 100% reserve value that money would otherwise have to carry. Therefore the economy becomes financed by allowing demand to cover the previously created debt and its pre-existing economy falsely, as in not true to real ability within a sound currency.
I used ‘resource’ in quotes, not money. It is a common term – ‘ how are your resources’.
I don’t mind that we share different views on semantics or how finance, society, and the economy work. Maybe one day we will understand the other as right, or right within their parameters, but I am sincerely not out to impress anyone, I am just sharing how I perceive the world around me, and I am sorry if that frustrates you.
Here is one article that presents a slightly different view of money. There are others around which cover alternative views of frl banking also.Topics that tend to end up with deep seated views and arguments, one’s that I really am not going to resolve here, if ever , for someone else, not least because they usually end up in completely subjective or philosophical territory. That is to say they tend to end with ‘ to each their view or beliefs’.
Frivolous exercise at best, as central banks cont to support markets. Mental Groundhog Day. Looping the same story just to be right but in the end nobody knows if the the market caves or soars.
Joseph Constable said:
On the topic of GDPNow. It always starts out high then drops. This is because it starts the new quarter with zero data. Because of the timing of data releases, the first ones create a high number in the model. Then as new data is released the model becomes more realistic. You have to wait a while before the model has any predictive value.
Put me down for 1-2% US growth and 2-3% world growth. Europe, Asia, and Emerging Markets are all doing well. They are all pursuing more trade, and continue to try to reach new trade deals with each other. Economies cannot grow very well without free(er) trade.
Without trade, economies have to rely on greater efficiencies through more automation and technological advances (ie human ingenuity). It is no coincidence that the most highly developed countries have the best education and skills systems.
Without trade, even if your manufacturing sector produces billions of products, who are you going to sell them to?
As economies evolve, goods production becomes a smaller percentage of economic activity because of automation, while services grow. 100 years ago, 80% of people worked on farms. Today its 2%. 50 years ago, 40% of people worked in factories. Today it is 20% and falling fast. Trying to measure and predict gdp growth as economies evolve is difficult at best, and is much like trying to predict the weather.
However, it is better to try to predict the future, because we need these sketchy models to help us plan for the future. The better the accuracy of our models and predictions, the more certainty we have to make our future plans.
The GDP NOW model isn’t very accurate, but its better than no model at all.
Keep those fingers crossed Mish, You will be right someday. Been calling the crash every year for the past 5 years.
I’ve been here for only 2.5 years and you are wrong. There was only 1 possible recession call that I’m aware of that MIsh made. And he Manned Up and admitted error.
Looking forward to your response.
I made two in error
I am not certain the first did not happen – we were very close
I have not been calling for a “crash” for 5 years.
In fact, when Stockman came out with a crash call I explicitly warned against it.
I have stated stocks are overvalued as has Hussman and I have repeatedly stated I do not know when it matters.
Crash – absolutely never called for one.
My actual call is more like a slow drain that lasts for years once it gets going.
That’s fair. I have been following you for around 10 years and the constant consistent theme of only presenting negative news just leaves me weary that you have an agenda. The economy in my experience has been growing for many years, but your reporting gives the completely opposite position.
I wonder how the sales are doing at the Salvation Army thrift shop retail stores. That’s where I buy my clothes. Yesterday I bought a practically brand new pair of Sketchers casual shoes for $10 that would have cost me $90 or more at a high-end department store. While some in our consumer driven society might hide it from friends and neighbors, I’m not proud. I brag on it. And I take partial credit for bringing the mainstream retailers down. It’s fun to beat them at their own game.
Victor Adam Smith said:
It, and Goodwill’s sales are booming – especially on their half-off price days.
Lots of “immigrants” and working class folks shopping there.
Many retailers, Target, Macy’s I think, etc. donate unsold stock with the price tags still on them to Goodwill. I’ve seen entire ranges of sizes and colors in some item – say a shirt – there – still with their original retail price tags attached.
I’ve even discovered where Barnes and Noble unloads their uber-expensively priced, glossy foreign magazines – local bookstores. (They’re unsold mags of that month or the previous month or two’s issues.
Lots of “retail” being handled now off the radar of the government’s bean counters.
Karen M said:
I’ve started shopping at thrift stores more often since 2008. And I’ve noticed they’ve been getting more crowded, and more thrift stores are opening up. Goodwill express drop off stores have been popping up in strip malls all around. I live close to a Sun City retirement development that was built during the bubble. And I’ve noticed that’s turned into a hot spot for thrift –I’m assuming as the elderly die a lot of the stuff they’ve collected for decades gets donated.