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