In the wake of a dismal personal income and outlays report today, the Atlanta Fed GDPNow Model forecast plunged to +0.6%.
Recall that on March 21, Atlanta Fed president Dennis Lockhart cited “sufficient momentum evidenced by the economic data to justify a further step at one of the coming meetings, possibly as early as the meeting scheduled for end of April.”
I took exception to that claim when he made it, and a couple of times since then. Specifically, I cautioned Lockhard better wait for some more economic reports.
Since then, most economic reports have ranged from muddle-through to terrible.
Latest forecast: 0.6 percent — March 28, 2016
The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2016 is 0.6 percent on March 28, down from 1.4 percent on March 24. After this morning’s personal income and outlays release from the U.S. Bureau of Economic Analysis, the forecast for first-quarter real consumer spending growth fell from 2.5 percent to 1.8 percent. The forecast for the contribution of net exports to first-quarter real GDP growth declined from –0.26 percentage points to –0.52 percentage points following this morning’s advance report on international trade in goods from the U.S. Census Bureau.
Tracking Lockhart’s “Sufficient Momentum” Thesis
GDPNow – March 21
Kaleidoscope Eyes
That was the GDPNow estimate before Lockhart’s speech to the Rotary Club of Savannah. His speech was called Kaleidoscopic Context for Monetary Policy.
I commented on his speech with my take called Kaleidoscope Eyes.
GDPNow – March 24
For my take on March 24, please see GDPNow Estimate Sinks to 1.4%; What About That “Sufficient Momentum” for Rate Hikes?
GDPNow – March 28
Momentum Since Lockhart’s Speech
- On March 21, the same day as Lockhart’s speech, I commented Existing Home Sales Plunge “Surprising” 7.1%, Price Concessions the Norm; What Happened? … Data was so bad the National Association of Real Estate cheerleaders showed concern. “Know Before You Owe” kinks have been worked out. The “surprise” downtrend continues.
- On March 23, I commented New Home Sales Near Consensus on Muddle-Through Track … It’s easy to spot the lack of momentum in housing starting a year ago. This is a muddle-through track, and a weak one at that.
- On March 24, Durable Goods Orders Plunge 2.8%; Will a Falling Dollar Soon Help? … The answer to my falling dollar question is “no”. I used a chart to explain why.
- On March 28, we noted Consumer Spending Outlook Buckles with “Surprisingly Weak” Income Report
What Led Lockhart Astray?
In my Kaleidoscope Eyes take, I wondered if Locklhart was even following his own Atlanta Fed model. He should be because he even mentioned it in his speech.
I suspected then, as I do even more so now, that Lockhart got advance warning from the Richmond Fed about an exceptionally strong-looking Richmond Fed report that came out on March 22, the day after Lockhart’s speech.
See my take: Richmond Fed Manufacturing Activity Jumps Most Since April 2010, Biggest Change in 23 Years; What’s Going On?
If I am correct about “what’s going on”, Lockhart does not know much about the weaknesses of small sample diffusion indexes and made a foolish prediction based on them.
For whatever reason, Lockhart went out on a weak limb, and that limb, with Lockhart on it, has come crashing to earth.
There’s plenty of momentum, but it’s all downhill. This is a recession track.
Mike “Mish” Shedlock
