GDPNow data from the Atlanta Fed, chart by Mish.

The July 15 update to the Atlanta Fed GDPNow Forecast shows a slight dip to -1.5 percent.

Real Final Sales

Most eyes are on the headline number, but that's not what one should be watching. The important number is Real Final Sales (RFS). It's the true bottom line number for the economy.

A week ago, the GDPNow RFS estimate bounce to +1.3 percent from +0.3 percent. Today RFS settled lower at 1.0 percent.

If RFS comes in negative for the quarter, the recession may have started in the first quarter.

If not, May or possibly July seems likely. 

Economic Numbers and GDPNow Reactions

Actual economic numbers do not matter to the GDPNow forecast. What does matter is the strength of the data vs what the model expected.

This is why the model forecast frequently goes in the opposite direction of the appearance of strength or weakness in the data.

The GDPNow forecast fell today because based on previous data, the model expected better CPI data or better retail sales data than what happened. 

A week ago I commented "This likely sets the tone for higher model expectations looking ahead. I expect weakness." 

We are all treating these numbers as if they are likely because the final GDPNow model forecast for each quarter has been very good for many quarters.

However, the model could easily be off in either direction by a substantial amount. 

Retail Sales Look Strong But Fail to Keep Up With Soaring Inflation

Nominal retail sales from commerce department, real (inflation-adjusted) sales by Mish.

Retail sales rose 1.0 percent in June. 

The Bloomberg Econoday forecast was for 0.9 percent. But the Commerce Department revised May up from -0.3 percent to -0.1 percent. 

Effectively June retail sales were 0.3 percent higher than economists expected, but the GDPNow model expected even better (or the CPI lower), thus its estimate fell.

Real vs Nominal Retail Sales Detail

Nominal retail sales from commerce department, real (inflation-adjusted) sales by Mish.

Strong Consumer?

It's real sales not nominal sales that add to real GDP. 

Nominal sales rose again, but real retail sales peaked 15 months ago!

For further discussion, please see Retail Sales Look Strong But Fail to Keep Up With Soaring Inflation

Looking Ahead to More June Data

That subtitle looks strange given that it's now July 15, but the economic reports for June are not yet in.

Key reports on ISM, new home sales, existing home sales, PCE, and income are coming up.

Rate Hikes

CME Fedwatch has the odds of another three-quarter point hike at 69.1% with a full point hike at 30.9%. 

The next FOMC decision is on July 29, about two weeks from now. Even if we are borderline recession now, another 75 basis point hike ought to do the trick.

Given the lagging nature of hikes, lagging nature of jobs, and a tight labor market, the Fed is likely to overshoot. A 75 basis point hike to 2.25-2.50% could do it.

Expect a Long But Shallow Recession With Minimal Job Losses

From a jobs standpoint I expect a Long But Shallow Recession With Minimal Job Losses.

From a stock market perspective, I expect things will be brutal.

For discussion, please see Artificial Wealth vs GDP: Why Earnings and the Stock Market Will Get Crushed

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