The Amazing Down Spiral of Atlanta Fed’s Q3 GDPNow Forecast

But is the auto sales data inflated?

After a crummy first half, the US economy really, really needed a strong third quarter, more than a strong one, a heroic one, to pull the year out of the doldrums. And at first, according to the initial estimates by the Atlanta Fed’s GDPNow model, it looked like we would be getting it, which triggered a big sigh of relief around the country. But the plunge since those heady estimates in early August has been breathtaking.

The GDPNow forecasting model is attempting to estimate what the official first estimate of quarterly GDP will be. This “nowcast” model takes in the data as it is released. Thus it gets more accurate as it closes in on the release date of the official first estimate of GDP. So this plunge is not propitious.

The current forecast dropped to 1.9% annualized GDP growth, down from 2.1% a week ago, and down from 3.7% in early August. Over those two months, the model has cut its growth estimate in half!

Today, the GDPNow forecast was dragged down by its forecast of third-quarter real personal consumption expenditures growth, which fell from 2.9% to 2.6% after the retail sales report from the Census Bureau this morning. I added the red line to the chart to show the slope:


“Annualized” GDP growth means that if the current growth rate were to continue for an entire year, GDP growth for the entire year would be 1.9%. So that would be back in the quagmire range of the past six years. By now no one even tries to trot out the illusion of hitting “escape velocity” next spring.

Also note how the range of “blue chip consensus” forecasts (shaded area) remains stubbornly optimistic. Apparently, they haven’t gotten the memo yet.

The standout in today’s retail sales report for September, which is what kicked the GDPNow forecast down, was the continued decline in sales by General Merchandise retailers, now down 2.5% from a year ago.

Nonstore retailers – online retailers such as Amazon – did well, up 10.6% from a year ago. Double-digit growth in this category is the norm.

Sales by motor vehicle and parts dealers, accounting for 21% of total retail sales, rose 2.5% year-over-year, according to the Census Bureau. This is measured in dollars. And it contradicts the September unit sales data we got a few days ago from the automakers, which wasn’t quite so rosy, showing a drop of 0.5% from a year ago.

Since vehicle and parts sales are by far the largest category of total retail sales, a special word is due to shed some light on the origins of this discrepancy, among them:

  1. The Census Bureau uses surveys to estimate sales data, while unit sales are based on dealer reports to their manufacturers of actual new vehicle deliveries (accurate or not) to consumers and commercial customers.
  2. Unit sales are not impacted by price changes or vehicle mix changes, but dollar sales are. So price increases or a shift to more expensive models can impact dollar sales but not unit sales.
  3. The Census Bureau report includes used vehicle sales and parts sales, which the data reported by automakers does not. They just report new vehicle deliveries.
  4. The Census Bureau may not accurately capture the “sales” amount of leases, because there is no sales price since there is no sale. Customers are renting the vehicle for a certain period of time and have no idea what the price is they’re paying because there is no price. There are only upfront payments, monthly payments, and potential payments at the end of the lease. Dealers report leases as deliveries.

Both reports have their strengths and weaknesses. So given how important auto sales are to total retail sales, and to the entire US economy, and to this GDP estimate, it would be nice to have accurate and reliable data in one place. But we don’t. So I tend to combine both reports into a mélange to figure out where this is headed. And I don’t think this strong auto sales report by the Census Bureau today was the entire reflection of reality.

This hasn’t happened since the Financial Crisis. Read… Rail Freight Gets Clocked from all Sides in this Economy

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  28 comments for “The Amazing Down Spiral of Atlanta Fed’s Q3 GDPNow Forecast

  1. There are models and there are models…

    What terms in the Fed model accounts for:

    * Financial Repression, e. g. Z/NIRP?

    * Rent Seeking, e. g. “play to pay” extraction by politicians?

    * Extortion, e. g. Tony Soprano?

    * Fraud, e. g. Enron, Lehman, AIG and Madoff?

    * Profligacy and Carelessness with government money?

    * Endless undeclared and needless colonial wars?

    * Manipulation of stock, bond, and commodity markets?

    There appear to be many other omitted but significant factors in these models.

    • Peak CHEAP Oil means the end to “growth” in any case.

      The false promise of “endless growth” at some nice rate ( say 4.5% ? ) is the basis for imagining a prosperous industrial powerhouse whose entire foundation is ENDLESS DEBT.

      “Nice” growth is necessary to service the model.

      Peak CHEAP Oil means growth is over. There is a near infinite supply of oil on the planet, but at what price ? More specifically, at what EROEI ( energy return on energy invested ) ?

      Growth is over, we must live with that.

      Too bad for the fraudulent fed and our lying leaders.


      • Chicken says:

        We have energy sources we choose not to use, these decisions are clearly being made for environmental reasons.

        • TRUE !

          I am a big fan of nuclear myself. Very small, and environmentally much safer Toshiba reactors. And thorium reactors too.

          When it is cold enough and dark enough, we’ll look at nuclear and at nuclear thorium reactors. The Chinese are moving into Thorium, experimentally, now.

          We got stuck with Uranium ( and Plutonium ) reactors for commercial use, because of the Rickover Nuclear Navy. Of course ! Why develop two parallel but incredibly dissimilar nuclear reactor technologies, when we needed Uranium reactors to power the Carriers and Subs, and their detritus ( Plutonium ) to reign over the world and rain down nuclear death upon all those who would challenge our reign.

          ( Sorry for the homophones, I got carried away )


        • Chicken says:

          Transportation fuel:
          In that case, how about hydrogen transportation fuel produced in some sort of reactor? Where ever do we read that discussion???

          I’ve read Thorium presents a similar set of challenges for disposal the current designs do, net no gain aside from unable to produce weaponry?

          Fuel transportation::
          One mechanism that could be used to safely transport and store large amounts of hydrogen would be to combine it with nitrogen in the form of ammonia (NH3). Of course anhydrous NH3 is no laughing matter either, it will take your life quickly in the event of an accident but boy will those daisy’s ever grow like there’s no tomorrow!!!

          After solving some energy problems, there’s waste processing and disposal, sanitation, and clean water. All of which can be addressed to some degree with an infinite “Low Cost” energy source.

        • RE : ’ve read Thorium presents a similar set of challenges for disposal the current designs do, net no gain aside from unable to produce weaponry?
          While this is true IF the thorium is used in the standard types of rod fueled reactors as a substitute for uranium, the LF/MS TR [liquid fluoride/molten salt thorium reactor] produces much LESS radioactive waste because of much more complete utilization of the nuclear fuel. Indeed, a LFTR can use the existing stockpile of “spent” fuel rods [which in fact still contain >99% of their potential nuclear energy] as auxiliary or supplemental fuel, eliminating most of that problem [currently estimated at a 10 to 20 year energy “stockpile.” for LF/MSTR operation.]

          The radioactive end products of the LF/MS TR has a MUCH shorter half-life than the “spent” fuel rods, so requires secure storage for only a few hundred years rather than a few hundred thousand years, and is “vitrified” to minimize dispersion, and many of these “wastes” have potential or actual industrial applications.

          For a short paper I wrote on this in 2012 see:

        • Earl Smith says:

          I spent several years pushing those nuclear submarines and had to learn a lot about nuclear engineering while I babysat 48 hydrogen bombs north of the Soviet Union.

          The biggest lie that the thorium proponents spread is that it is bomb free. Thorium does not fission. You add a neutron and transform it into U233 which is what is the actual fission material. And you CAN make a bomb using U233 just like you can with U235 or Pu239. How do I know? Because we made several and tested them just to prove it.

          In fact a thorium system would allow you much easier access to bomb making materials. In the uranium system you have to use chemical separation on very short cycle runs to extract Pu239 before it turns into Pu240 which makes any bomb fissile.
          And this is done by taking out the fuel rods, cutting them up and then processing the whole reactor.

          In contrast you just need a chemical stream to extract the U233 from the Th232. So a determined country just extracts a little bit of the fissionable from the reactor and voila! Instant bomb material.

          Besides there is a question of reactivity and design for the reactor that requires more fissile material because U233 has a lower thermal neutron fission cross section.

          Actually I prefer to use U235 as the fissile material in a molten salt reactor because it can be worked with natural uranium to construct a breeder reactor. Combine this with a subcritical design using a uranium target (or better yet a Plutonium target) neutron gun to achieve criticality and you have a system that has a subcritical system that just requires cutting the power to the neutron gun to shut the works down.

        • Marty says:

          Clearly? More like clear as mud. How about for faux environmental reasons, clearly for population control reasons.

    • Winston says:

      “There are models and there are models…”

      And here’s a short video about the simplistic garbage ones they’re using to run the world:

  2. Ptb says:

    Hmmm, rate hike in the near future? Looks less and less likely.

    • bead says:

      Well, they promised! But I think they will ask their Wall Street cronies whether they are correctly positioned first. “No, Stanley, the rubes aren’t in just yet; give us another quarter.”

    • Chicken says:

      I can hardly wait, considering all our best thinking got us to where we are today, in this world of the more things change the more they remain the same criminal enterprise always wins.

    • CrazyCooter says:

      I was a few beers into a great ocean view the other day (we have had very un-seasonal sunny weather for October) and it occurred to me that if Trump were elected and really got into with the Fed – he could end run around them by setting the rate he would pay on Treasuries (instead of auctioning them).

      The TREASURY is a branch of the government – the FED is a private bank with a charter from Congress – so the Treasury could sell bonds however they damn well feel like.

      So, it would go like this – Trump says “The Treasury will issue 5 year bonds at 5%, no more, no less. 100B on deck this week – – get in line.”

      And he could politicize it by letting fixed income retirees have first helpings, maybe pensions second, whatever – you get the idea.

      And just like that – the yield curve sheds it’s shackles and all hell breaks loose.

      And then, couldn’t he use those 100B in proceeds to buy much more than 100B in face value bonds at a discount? Cut the debt in half through discounted bond purchases?

      Am I crazy?



      P.S. Not saying this is going to happen, but it put a smile on my face walking through what the mayhem might look like … :-D

      • Wolf Richter says:

        That would be a hoot!!!

        I think it would trigger the instant collapse of the entire $100 trillion global bond market, as everyone would revalue every bond out there. For example, junk bonds that now yield 6% would suddenly yield over 10%, and their prices would crash to produce that yield.

        But I’m not sure if that’s how it would play out. I have to think this through as a thought experiment, later tonight, over a good IPA.

        Meanwhile, what if central banks decide that this is effing crazy and simply buy up every bond they legally can buy up to keep yields low despite the issuance of high-yield Treasuries. The “Bond Wars,” they will call it afterwards in numerous bestsellers. I can tell, I’m already getting confused, and I haven’t even had a beer yet.

        • d says:

          For it to have any real effect.

          It would have to be done with10’s trillions of $ worth of bonds, as there is so much cash looking for a home.

          If purchases were not Purchaser and destination regulated, the chinese, and others, would print trillions to buy them, as they would be getting the higher interest rate on their printed toilet paper, effectively.

          What it would also do, is cause bank rate’s to move by that much + margin overnight. Instant depression, and housing crisis (What ever number we have got to).

          Rates need to raise, slowly, so as to not tip the current stagnant/flat economy, into a deflationary Economy.

          With a sharp large raise you will get an effect I cant name, as stagflation does not cover it. There would be many price increases which rules out the term deflation. I don’t think the simple term depression covers it either.

          A stagnant or shrinking employment and production base, decreasing consumer, and everyday commodity demand. Accompanied by Hyperinflation of basic consumer commodity prices, and rapidly rising retail interest rates. With a declining property sales price, for those forced to sell by conditions.

          And a dumping of other assets that the holder can afford to hold in a Z/NIRP environment that they can not afford to hold, in a 5% rate + margin environment.

          Hugely, Trumchaotic, perhaps?

          Before you add the lack of demand causing more unemployment, due to interest rate shock, in durables, housing, and auto’s. And the follow on downward spirals that go with that.

          Which would, once Basic consumable prices stabilized, take you into a massive depression.

  3. Good One….. But the Donald does not want to pay money out, he talked about re-negotiating all the tons and tons of bonds…. He almost wanted to walk away from paying anything on them, default. He would not up the rate.

    And then when bonds are auctioned are they not bought at auction by the fed so that the rate is depressed further….? I’m pretty sure I read that somewhere. It makes sense to me.

  4. Paulo says:

    Donald is too busy defending chasing skirt and groping beauties to actually campaign and win an election. It’s a moot point.

    I can hardly wait for the headlines on election day. I am sure they are already written.

    Contest brewing? The obvious ones, (You’re Fired! and Loser!) should be disqualified for the contest.

  5. Julian the Apostate says:

    Alas, there may be more people riding in the wagon than pulling it. I don’t give a damn about Trump’s fondness for the female sex, because Billary live in a glass house. But I gave up prognostications a long time ago. There are so many black and grey swans flying around I feel like we might actually learn how Hitchcock’s ‘The Birds’ ended. I didn’t believe growing up in the 60’s that the world would end in a nuclear conflagration and I still don’t despite growing up in the shadow of Offut AFB. Even the looters in Washington can’t live off of a glazed silica flat. In the Deathlands series there is a pearl of wisdom that states: “you sleep with the Devil you wake up fucked.” A nice new Cold War would grease the skids for lots of new toys for the military, while the veterans continue to be screwed by the VA.

  6. Edward E says:

    Sure do like what I’m seeing here… until the realization of that Hillary installation could totally mess up everything.

    CONFIRMED: U.S. backs down over Syria after Russian threat to shoot down American aircraft

    Western media suppresses news of U.S./Russian clash and U.S. climbdown over Syria

    The pumpkin patch has let me take some time off to work on my land among other things. They said you can do whatever you want, couldn’t believe it. I was in Cicero using a screwdriver to pry gravels out of the Elmer’s Glueyear tall rubber drive tires a couple of weeks ago and there was an unfired .40 s&w bullet lodged in a groove. That’s when I made up my mind maybe now is the best time. Possibly things will pick up substantially after the election. Hope everything gets better soon for everyone. Now the hard work begins

  7. MC says:

    Am I the only one who is growing suspicious of car sales numbers?

    In Italy, where even the government has been forced to admit “recovery” is still a mirage, car sales grew an amazing 10.2% year on year in September.
    In China, whose economy is already stagnating if not contracting, car sales in September grew an astonishing 29% year on year, with local manufacturer Geely and Mazda of Japan both reporting over 40% growth.

    It has been like this since May 2014: double digit monthly growth on top of an already saturated market. It literally doesn’t add up, especially given NIRP and ZIRP do not translate into lower interest rates. In fact in Europe, where interest rates have been in deep negative territory for years, EAPR on car loans are considerably higher than they were in the 2003-2009 time frame.
    Yes, lending standards have been loosened, sometimes considerably so, and yes, the household leverage ratio is again rising its ugly head even in Spain, but neither support over two years of double digit growth.
    Something beyond shady is going on here.

    • Petunia says:

      Last year when I still lived in Florida, among my neighbors were families doubled and tripled up due to the housing costs and job losses. The one thing every adult had, was a new car. It was not unusual to see 3 or 4 cars parked in front of a 3 bedroom house.

  8. Julian the Apostate says:

    As a trucker I see a lot of new cars on the road. When I bought my first new Kia it was still looked upon with a hairy eyeball. Now they are everywhere. There are a lot of new Government Motors cars and especially trucks, and Fords as well. Honda and Toyotas are well represented. I even had a new Maserati pass me the other day. Keeping up with the Joneses? Who can say? Lots of Beamers in the larger cities but Mercedes are underrepresented. No, they’re selling a lot of cars…

    • d says:

      no deposit, bad credit no problem, interest free, no charge for finance no payments for x, pay over 5/7 years. Etc, Etc.

      They arent selling them, they are giving them away, and when that happens to the point where they saturate the market it must crash.

      How many of those things will be registered south of the US border, then registered in another country again, before they are reported stolen in the US.??

    • Ptb says:

      Drove up the 5 from LA to SF. Tons of new cars. But I do think CA is doing better than most states by a wide margin.

    • Edward E says:

      I wish they would bring back the ’67 Mercury Cougar. It was way more beautiful than the Pony car and it came with a suspension package to match the weight of the motor. They handled superbly, Carol Shelby raced them on road courses, I loved mine it was awesome.
      Pro-Touring 1967 Mercury Cougar

  9. Chicken says:

    Keeping a closer eye on the 20 year, testing the lower BB now.

Comments are closed.