Atlanta Fed GDPNow Forecast Spirals Ever Closer to Zero, by Wolf Richter

Real economy indicators are fading. From Wolf Richter at

Retail sales and inflation did it.

The Atlanta Fed’s GDPNow model, which forecasts GDP growth in the US, dropped to 0.5% seasonally adjusted annualized GDP growth for the first quarter. This “annualized rate” means if the economy grows like at this pace for four quarters in a row, it would edge up only 0.5% for the year, which would make it by far the worst year since the Great Recession.

By comparison, in 2016, which matched 2011 as the worst year since the Great Recession, GDP growth was 1.6%.

A week ago, the GDPNow forecast had already dropped to 0.6%. At the time, I mused, “I hope the model is wrong.” This hope is now even more fervent.

What did it today? Retail sales and inflation.

The ugly retail sales report this morning in combination with the Consumer Price Index, also reported this morning – more on that in a moment – pushed down the GDPNow forecast for growth of “real” consumer spending (adjusted for inflation) from 0.6% before today to a miserable 0.3% today. Real consumer spending is a dominant factor in GDP. It captures not just retail spending, but also spending on rents, healthcare, tuition, insurance, etc.

The GDPNow model gets more accurate in predicting GDP growth as reported by the Bureau of Economic Analysis in its first estimate for that quarter. So now, as the March data is coming in for the first quarter, the GDPNow forecast is heading south toward zero. I added the red arrow. Note how the forecast has plunged since April 4, when it was still 1.2%, and from the end of February when it was sill 2.5%:

To continue reading: Atlanta Fed GDPNow Forecast Spirals Ever Closer to Zero

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