Just One Week Later, Atlanta Fed's Q2 GDP Forecast Crumbles From 4.3% to 3.6%

It's deja vu all over again.

Four months after the Atlanta Fed started off its Q1 GDP nowcast at 2.5%, then raised it just shy of 3.5% before eventually crashing, and closing the books at 0.2%, slightly below where the BEA reported Q1 GDP, on May 1 the regional Fed released its initial GDP forecast for Q2, and, as we noted last week, it came as no surprise to anyone that the initial estimate was just a tad optimistic at 4.3%, to which we commented that if past is prologue, "expect this number to end roughly 50% lower in three months when the first advance Q1 GDP report is released."

One week later, we are a third of the way there, because moments ago, the Atlanta Fed did just as expected, and chopped off a whopping 17% from its initial estimate, revising its Q2 GDP estimate from 4.3% as of May 1 (and 4.2% as of May 4) to 3.6%, due to a decline in forecast real consumer spending growth and real private fixed investment.

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2017 is 3.6 percent on May 9, down from 4.2 percent on May 4. The forecast for second-quarter real consumer spending growth and real private fixed investment growth declined from 3.0 percent and 6.9 percent to 2.7 percent and 5.3 percent, respectively, after the employment situation release by the U.S. Bureau of Labor Statistics on Friday. The model's estimate of the dynamic factor for April—normalized to have mean 0 and standard deviation 1 and used to forecast the yet-to-be released monthly GDP source data—has fallen from 0.76 to 0.32 since the last GDPNow update on May 4. The forecast of the contribution of inventory investment to second-quarter growth decreased from 1.11 percentage points to 0.99 percentage points after this morning's wholesale trade report from the U.S. Census Bureau.

The breakdown by component:

  • PCE contribution est. at 1.85%
  • Nonresidential equipment investment contribution est. at 0.34%
  • Nonresidential intellectual property products investment contribution est. at 0.17%
  • Nonresidential structures investment contribution est. at 0.13%
  • Residential investment contribution est. at 0.23%
  • Government contribution est. at 0.02%
  • Net exports contribution est. at -0.12%
  • Change in inventory investment contribution est. at 0.99%

Expect many more such cuts in the coming weeks as the Fed realizes that what it thought was "residual seasonality" - also known as "weather" - was actually a tapped out US consumer, who as the Fed disclosed yesterday, now has an aversion to credit cards and as a result demand for credit cards is now running at the lowest level in the past 5 years. Good luck hitting 3%, or even 2% GDP with no consumer spending.


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