GDPNow Forecast Dips to 1.3 Percent: One Heck of an Inventory Adjustment

The GDPNow and Nowcast forecasts are in alignment but the details and implications are not the same.

The Atlanta Fed GDPNow forecast dipped to 1.3% following the Census Department's Advance Economic Reports.

The New York Fed Nowcast model is 1.4% as July 19.

Big Difference?

Despite the apparent tiny difference between the models, the underlying assumptions may be quite different.

Whereas GDPNow breaks out inventory adjustments, Nowcast doesn't. So we cannot say for sure if the models are really in agreement.

Real Final Sales

GDPNow has "Real Final Sales" at 2.4%.

That is the true bottom line GDP estimate as inventories tend to zero over time.

One Heck of an Inventory Adjustment

The difference between the GDPNow base forecast and Real Final Sales is inventory.

Pat Higgins, GDPNow creator commented today "After this morning's Advance Economic Indicators and advance durable manufacturing reports from the U.S. Census Bureau, the nowcasts of the contributions of inventory investment and net exports to second-quarter real GDP growth decreased from -0.97 percentage points and -0.50 percentage points, respectively, to -1.09 percentage points and -0.63 percentage points, respectively."

The inventory adjustment takes about 46% off the GDPNow estimate. That's quite a lot.

Advance Reports

  1. Advance Durable Goods: May-June Revision Ping-Pong Match Continues with Durable Goods
  2. Advance Trade: Collapse in Trade: Exports Down 2.7%, Imports Down 2.2%
  3. Advance Inventories: Inventory Report a Bit Weaker than Expected

Advance GDP

Tomorrow the BEA will release its initial (advance) GDP estimate for the second quarter. Pay attention to real final sales, not the base GDP report.

A reader commented "Anyone trying to prove a point with tomorrow's report - good luck!"

I agree with that assessment as GDP is a hugely lagging indicator.

But my point is there is a big difference in current interpretation.

Mike "Mish" Shedlock

Comments (4)
No. 1-4
Tony Bennett
Tony Bennett

"Pay attention to real final sales, not the base GDP report."

...

Clear as mud.

These reports face multiple revisions. BEA economists particularly bad at inflection points. Take Q1 2008 - first full month of last recession. Initial report with some of the revisions.

Advance report ... April 30th, 2008 ... +0.6% Preliminary report ... May 29th, 2008 ... +0.9% Final report ... June 26th, 2008 ... +1.0% Revised ... July 31st, 2009 ... -0.7% Last revision ... July 27th, 2018 ... -2.3%

Anyone trying to prove a point with tomorrow's report - good luck!

Mish
Mish

Editor

"Anyone trying to prove a point with tomorrow's report - good luck!"

I agree with that comment. But my point is there is a big difference in immediate intrepretation

Sechel
Sechel

Could we be finally seeing the impact of Trump's trade policies coming home to roost? Feels like we may.

Herkie
Herkie

GDP is only 1.3% IF you swallow the inflation data they feed us. If inflation were to be hotter (just pick any number say 4.5%) then the GDP reading is not being adequately deflated for inflation. Meaning their reported GDP is a lot higher than reality, I say inflation is higher and we are actually contracting now.