On Friday, the Atlanta Fed released its final GDP forecast for the fourth quarter of 2022. Let's discuss.

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Chart Notes

• The blue line is the base forecast. It is about all the public sees or hears about when the BEA releases its GDP reports, but it isn't what matters most.
• The red line is Real Final Sales (RFS). That is the bottom line estimate for the economy and what does matter most.
• The yellow line is RFS to domestic buyers
• The green line is RFS to private domestic buyers. It excludes government and exports.

GDPNow data from the Atlanta Fed, Chart by Mish. 

Real Final Sales is the true bottom line performance for the quarter. The difference between the baseline report and RFS is inventories which net to zero over time.

Mainstream media follows the baseline number, not what matters most. 

GDPNow Current Estimate

Please consider the final update to the GDPNow Forecast for 2022 Q4 GDP.

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2022 remains 3.5 percent on January 20. The nowcast was unchanged after rounding following this morning's report from the National Association of Realtors.

This is the last GDPNow forecast for the fourth quarter. The first GDPNow forecast for the first quarter of 2023 will be on Friday, January 27. 

Will GDPNow Hot Hand Continue?

Evolution of GDPNow Forecast from Atlanta Fed, annotations by Mish

The Blue Chip consensus is an expensive proprietary subscription. The Atlanta Fed is able to post some results with a lag. 

December data (reported in January) has been miserable across the board. That does not necessarily matter. What does matter is what the data is vs what the models expected. 

We have no idea what the Blue Chip expected. 

What If?

The GDP model has a very hot hand in 2022. But historically, it has had some pretty big misses on occassion.

If we assume the Blue Chip forecast declines just a bit on the recent reports and downward revisions on retail sales and industrial production, that would put its estimate at roughly 1.5 percent. 

Q: Is that recession territory? 
A: Yes, because it's a baseline forecast and that's not what matters. 

There is 1.5 percentage points between the GDPNow baseline forecast and Real Final Sales. Subtract 1.5 percentage points from the Blue Chip estimate and you are right at zero with incredibly weakening data across the board. 

New Home Sales Cancellations

The cancellation rate for KBH was an amazing 68 percent.

The New Home Sales Report Is Another Negative Revision Swamp in November

New Home Sales data from the Census Department, chart by Mish

November Revisions

• August from 661,000 to 646,000
• September from 580,000 to 559,000
• October from 632,000 to 605,000

Recall my post on December 23, The New Home Sales Report Is Another Negative Revision Swamp in November

Negative Groundhog Day

Those revisions are on top of negative revisions in October and September, now lowered again. 

Is this a joke or what? Negative groundhog day perhaps? 

 What About Cancellations?

The Census Department does not subtract cancellations from its reports and cancellations due to rising mortgage rates have been huge.

To repeat, none of these revisions include cancellation and cancellation rates have been as high as 25 percent!  [Make that as high as 68 percent]

In declining sales environments and economic downturns (now), the Census Department dramatically overstates sales, even if we ignore revisions.

In economic upturns, the Census Department understates sales. 

Revisions

At economic turns, expect revisions. Heading into recessions, all of the revisions rate to be negative.

Expect to see negative revisions on jobs, more negative revisions on retail sales, and massive errors on new home sales that will not even be revised because the reporting methodology is outright flawed.

I will do a follow-up post later this weekend including a discussion with bond guru Lacy Hunt on the timing of the recession. 

Meanwhile, note another huge inventory build (assuming GDPNow is correct on that score), smack in the face of hugely weakening data across the board.

Wonderland Economy

Cast of Characters

• Mad Hatter: Jerome Powell, Fed Chair
• Red Queen: Janet Yellen, Treasury Secretary
• March Hare: John Kerry, U.S. Special Presidential Envoy for Climate
• Humpty Dumpty: President Biden
• Alice: You decide 

In case you missed it, please see my Wonderland experience Alice Debates the Mad Hatter and the Red Queen on Timing the Recession.

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