Cusp of Recession: GDPNow 1.4% vs Nowcast 2.1%, Nowcast 2019 Q1 is Only 1.2%

-edited

After trailing GDPNow for nearly the entire quarter, Nowcast now Lead GDPNow by one full percentage point.

The Atlanta Fed updated its GDPNow Model yesterday. The New York Fed updated its Nowcast model today.

For the first time in a long time, the Nowcast model is a full percentage point higher than GDPNow on the base forecast.

Real Final Sales

Nowcast does not provide a "real final sales" forecast. That is the bottom line estimate of the GDP forecast.

GDPNow assumes that inventories, which net to zero over time, will add 0.6 percentage point to GDP.

That is a bad sign, if accurate, and retail sales do not pick up. The Nowcast seems to be factoring that in.

Let's look ahead.

Nowcast 2019 Q1 Forecast

History

GDPNow has had a hot hand, but factoring in GDPNow's estimate of inventories, the models are converging lower, way lower, and suddenly lower.

I suspect both are on the high side at the moment. If housing and autos don't pick up, we are on the cusp of recession, if indeed not in one.

If retail sales sink further, recession will be confirmed.

Mike "Mish" Shedlock

Comments (13)
No. 1-10
Realist
Realist

Hi Mish. I have lost count of the number of times you have called a recession. Eventually, you will be correct. However I’m still not expecting one this year. I’m still estimating 2% growth for the US this year.

Mish
Mish

Editor

I called two that never happened. The count is two and that is accurate. The number of times I talked about a recession is another matter. I don't know

Realist
Realist

Then I stand corrected. I must have mis-interpreted some of your recession talks as actual calls. By the way, I appreciate your analysis of data, such as gdpnow and now cast. Thanks.

AWC
AWC

I guess we need something to goose these markets with a massive dose of Fed largess. It might as well be a recession. But, then, recession calls are usually hedged with terms like "Sometime in the next two years."

I'm not sure what The Donald told Jerome at their recent WH meeting, but he may have alluded to the possibility that the 2020 election campaign has started early, and he would, of course, be happy to invite his appointed Fed Chief on board.

lol
lol

Borrowing (printing)2 trillion plus (3)a year for 1.5-2% dept generated "growth"!Look for a massive Fed spring money printing offensive to drive equities to 35,000-40,000 level and add a tail wind to Trump's reelection bid.

Carl_R
Carl_R

It's a bit hard for me to know what to make of these numbers due to the government shutdown. That may have affected the accuracy of the numbers collected, but also would have caused some deviations in spending patterns. Did people spend more while they were off (since they had ample time to shop), or tighten their belts until the money was in the bank? In the end, I have no clue, so I'm waiting a month or two for things to sort themselves out.

Certainly the index of leading indicators is ambiguous. It could go either way from here, though the trend appears to be downward:

QTPie
QTPie

You’ll know when we are in a recession because when we enter one, unemployment will shoot way up. It always does. Obviously, we are not there yet. I would put my money on Q4 2019, give or take a quarter.

Casual_Observer
Casual_Observer

Recessions are never coincident with economic data. The last two recessions already started when employment data was still strong and later revised GDP numbers negative.

Imo this one is a head fake due to effects of the stock market and government shutdown in December and January. That doesnt mean a recession won't happen in Q2 or Q3 but there will be some other event that has to push us into recession. It could even be indicting a sitting president or resignations from multiple people in Washington.

The Fed knows they are in a pickle and will leave things alone. The central bank is ready to cut and let the party go on until some other event cuts consumption and growth and causes a deep recession precipitating the next debt deflation cycle.

Casual_Observer
Casual_Observer

Another way to look at it:

Is it possible to get positive GDP but be in a recessionary economy ? Yes. Most of the components of GDP arent productive and simply spending more via government debt can setup positive GDP but a declining private jobs market.

On the personal side I'm seeing more interviews from energy and healthcare which are wholly unproductive industries to the overall economy from a standard of living standpoint. We are now simply living in a replacement economy.