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GDPNow data from the Atlanta Fed, chart by Mish

The Atlanta Fed GDPNow nowcast is significantly below the forecast high of 4.2 percent on May 14, but also higher than the June 3 nowcast of 1.8 percent.

What Happened?

The reason for any change is always the same. It’s not the data that matters, rather it’s the data vs the model expectation that matters.

Thus the reports from June 4-6 were better than the model expected. That does not imply the reports were good or bad.

The following table provides a better explanation than generic statements.

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GDPNow contributions from the Atlanta Fed, yellow highlights by Mish.

I discussed the June 3 plunge in my previous GDPNow analysis. Let’s go June 4-6.

June 4

On June 4, the Monthly Full Report on Manufacturing Durable Goods was better than the model expected. This happened because the GDMNow model overweighted the poor Manufacturing ISM numbers and/or the advance report on durable goods.

Also, auto sales beat the Econoday consensus and may have exceeded the GDPNow expectations.

I did not look at the full durable goods report until today or I would have anticipated some of this this bounce.

June 5

The ISM nonmanufacturing report was better than the model forecast. However this only added 0.1 percentage point to the GDPNow model.

June 6

Heading into today’s GDPNow update, the model overweighed the advance trade data. The full international trade report (goods plus services) was out today and was not as bad as one might have expected from the advance data.

I expected this part of the bounce result looking at the trade data before I looked up the actual impact on GDPNow.

The net impact of the full trade report was a hike of 0.2 percentage points in the GDPNow nowcast.

Understanding the Model

Having followed GDPNow for years, I can now usually make a reasonable advance guess as to how the model will react to the data.

Still, it’s not always that easy. The key is not how good or bad the data is, but rather anticipating what the model expects. Often I just don’t know.

My May 30 Comment

This rates to smack GDPNow https://t.co/47ghxVTC2z

— Mike "Mish" Shedlock (@MishGEA) May 30, 2024

I discussed the trade deficit dip on June 1 in Soaring US Trade Deficit Smacks the Atlanta Fed GDPNow Forecast

We can see now that the model overreacted to the Advance Trade Data.

ISM Manufacturing New Orders and Backlogs in Steep Contraction

On June 3, I noted ISM Manufacturing New Orders and Backlogs in Steep Contraction

The model overreacted to the manufacturing ISM report as well.

Current Numbers

• GDPNow Base Forecast: 2.6 percent
• GDPNow Rea Final Sales 2.0 percent

The base forecast is essentially irrelevant although that is what most follow. including the media.

Real Final Sales is the bottom line estimate of the economy. The rest is an inventory adjustment that nets to zero over time.

CIPI (Change in Private Inventories) currently adds 0.53 percentage points to the GDPNow nowcast.

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