Atlanta Fed GDPNow Forecast Spirals Closer to Zero

Hammered by retail sales and inflation.

The Atlanta Fed’s GDPNow model, which forecasts GDP growth in the US, dropped to 0.5% seasonally adjusted annualized GDP growth for the first quarter. This “annualized rate” means if the economy grows like at this pace for four quarters in a row, it would edge up only 0.5% for the year, which would make it by far the worst year since the Great Recession.

By comparison, in 2016, which matched 2011 as the worst year since the Great Recession, GDP growth was 1.6%.

A week ago, the GDPNow forecast had already dropped to 0.6%. At the time, I mused, “I hope the model is wrong.” This hope is now even more fervent.

What did it today? Retail sales and inflation.

The ugly retail sales report this morning in combination with the Consumer Price Index, also reported this morning – more on that in a moment – pushed down the GDPNow forecast for growth of “real” consumer spending (adjusted for inflation) from 0.6% before today to a miserable 0.3% today. Real consumer spending is a dominant factor in GDP. It captures not just retail spending, but also spending on rents, healthcare, tuition, insurance, etc.

The GDPNow model gets more accurate in predicting GDP growth as reported by the Bureau of Economic Analysis in its first estimate for that quarter. So now, as the March data is coming in for the first quarter, the GDPNow forecast is heading south toward zero. I added the red arrow. Note how the forecast has plunged since April 4, when it was still 1.2%, and from the end of February when it was sill 2.5%:

Today’s stumble of the GDPNow forecast was largely driven by an ugly retail sales report that emanated this morning from the Commerce Department. This “advance” estimate (the full report will be released on April 26) indicated that retail sales in March fell 0.2% from February, to $470.8 billion. In addition, February’s decline was revised from -0.1% as originally reported, to -0.3%. This made for the worst two-month stretch since January-February 2015 when polar vortices were sweeping over much of the country.

These retail sales estimates are adjusted for seasonal, holiday, and trading-day variations, but not for price changes. More on those price changes in a moment.

The largest contributors to the decline were motor vehicle and parts sales, which accounted for about 21% of total retail sales in March. The auto industry is coming off its peak and is struggling mightily to prevent worse. Auto sales have been pulling down overall retail sales all year.

In March, sales at new and used auto dealers fell 1.5% from February. The broader category of sales at motor vehicle & parts dealers fell 1.2%, represented by the long grey bars heading south in the chart:

Gasoline sales (7.5% of total retail sales) also helped the decline, falling 1% on a monthly basis, mostly due to lower gasoline prices (down 6.2% from February). Retail sales minus autos were flat in March. Retail sales minus autos and minus gasoline inched up 0.1%.

Sales at building materials and garden equipment supplies dealers fell 1.5%. The March snow storms did it. So yes, if you exclude all the big bad stuff, the remaining retail sales are actually up.

But it’s not a fiasco on an annual basis. Total retail sales rose 5.2% from March 2016, propped up by:

  • Inflation. Prices as measured by the Consumer Price Index, also reported today, rose 2.4% year-over-year. The CPI measures all consumer expenditures, including services. But I mention some of the subcategories here to provide some perspective.
  • Gasoline sales surged 14.3% over the 12-month period due to gasoline prices that surged 20%.
  • Sales at nonstore retailers (mostly ecommerce), which accounted for 11% of total retail sales, jumped 11.9%, continuing the rapid structural shift from brick-and-mortar retail to online sales.
  • Sales at auto and parts dealers rose 5.6% over the 12-month period. New vehicle prices inched up 0.2% year-over-year in March, but used vehicle prices fell 4.7%.

Auto sales are always confusing in this report because it often seems to contradict separate reports issued two weeks earlier by automakers. But they measured different things.

The report by the Census Bureau today is an estimate based on surveys of new and used vehicle sales, expressed in dollars. Automakers report actual new-vehicle sales by dealers to their customers, and by automakers directly to large fleets and to their own employees, all of them expressed in units, not dollars. But they don’t report used vehicle sales.

Automakers have reported that new vehicle sales in terms of units delivered to retail and fleet customers are down 1.5% for the first three months of the year, and down 1.6% in March, compared to a year ago. A shift to more expensive vehicles (from cars to SUVs and trucks) would produce higher dollars sales. But then, automakers have paid out record incentives this year to push unit sales, and those incentives come off the top line expressed in dollars, which automakers report on a quarterly basis.

But the industry’s reporting on used vehicle retail has not seen this weakness. A flood of used vehicles coming off leases and out of rental car inventories are going through auction and are pushing down wholesale prices. Lower prices and lots of supply have been a boon for used vehicle retail sales. The Census Bureau report estimates new and used vehicle sales combined, which explains part of the difference.

This thermometer for discretionary spending is the first to react when consumers hit their limits. Read… Restaurants in Worst Tailspin since 2009/2010

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  45 comments for “Atlanta Fed GDPNow Forecast Spirals Closer to Zero

  1. Kent says:

    Just as we had a lackluster recovery from the Great Recession, I’m predicting we are entering a lackluster recession. Everything goes negative, but just a little bit.

    • Wolf Richter says:

      It would be the kind of recession that isn’t officially recognized until a few quarters after it already ended. We had many of those. The Great Recession was actually an exception in that it was declared while it was still raging.

    • Bobber says:

      I think everything could go negative, just a little bit, but for a long time. I don’t see anything that is going to spark growth. All I see out there are things that erode growth, such as the great wealth divide that seems to be increasing as we speak. The Millennial economic genocide is continuing with no obstructions yet.

      • steelhead says:

        I really do not think that economic genocide is limited to the Millennial

  2. hidflect says:

    Perfect storm for gold.

    • NotSoSure says:

      You mean for Gold to go down? Yeah, I’d agree. You do realize that someone can print tons of money digitally and sell more gold than currently in existence through the futures market many times over right?

      It’s a feature not a bug.

      • rj says:

        It should be zero then. It’s not zero. Gold has outperformed the S&P by a factor of 6 since the millennium. Including dividends.

        • d says:

          People complain of the manipulated US stock market.

          That is infantisimile compared to the gold market which is the most manipulated market on the planet. Gold is to put it mildly extremely overvalued. Mostly due to goldbug hyping.

          Supported by researching its divergence from silver since and other metals 1900.

      • Bobby says:

        Meaning he would have to eventually buy his short sales back with gold that has a paper ratio of almost 10:1 With 10 paper ounces accounted for every 1 ounce that exists. Good luck with that long term plan for shorting gold. Unfortunately most gold bugs are just little guys like me that don’t have much money to buy gold that would influence the price.

      • Frederick says:

        NotSoSure I’m not so sure and I own quite a bit so I sure hope didflect is correct War is good for the gold price by the way and with Kushner running the country it’s a real possibility

    • economicminor says:

      I would imagine that until we get to the real deflationary part of the cycle that gold should do better than everything else.

      Why? Because it can not be bought with debt for the most part. It is debt free. So when things look shaky, gold is a good investment. A hedge against chaos.

      I wouldn’t put all your eggs in that basket though because when deflation finally does come, gold will go down along with all commodities. In a deflationary cycle what one needs is CASH…

      The problem with cash is that it earns nothing until then. And as the FED has been pushing inflation CASH is worse because it diminishes in value as monetization causes prices to rise. So CASH isn’t worth holding until it is BUT when it is, it is really the only thing to hold.

      Hard part is determining when that is or getting your CASH when it is or holding out while you wait.

      • Bobber says:

        Agree, but holding cash doesn’t have to be painful It’s not an all or nothing affair. For example, if you are worried about losing out to inflation, why not hold 80% cash and 20% in commodities. If there is inflation, the commodities will rise better than any other asset and provide an overall return for your portfolio that beats inflation. If instead there is deflation, you’ll lose on the commodities but you’ll be sitting pretty on top of a mountain of cash. Plus, “cash” doesn’t earn nothing even in inflationary times. You can buy 5 year insured and brokered CD’s that pay 2.5%.

      • d says:

        “Why? Because it can not be bought with debt for the most part. It is debt free. So when things look shaky, gold is a good investment. A hedge against chaos.”

        You are saying you can not use gold as a security to borrow money.

        Or more importantly, borrow money against worthless/Fraudulent paper assets, and buy physical gold with it. Borrow against the gold in several places, then make the gold, and all the borrowed cash disappear in a Bankruptcy. One of the commonest frauds in town.

        Physical Gold, is an asset, Debt can be attached to it, like any other asset

        • economicminor says:

          Using gold as an asset to borrow against is beyond me. Certainly not on my level. When I purchase gold it goes in a safe. I have no clue how I would then borrow against it.. Who holds it?

          Maybe the big institutions can do what you suggest but I have no idea how I or any private party could do that.

        • d says:

          “Maybe the big institutions can do what you suggest but I have no idea how I or any private party could do that.”

          if you have investment grade gold items, or serial # reserve gold bars, you have paper work go with this. This paperwork also helps in valuation of the security by the lender.

          Even as a small holder you can place this gold in a non bank storage facility and borrow against it.

          Most loans are still based on your ability and intent to repay, many only on your perceived intent. So access to the underlying security is not always a primary issue.

          Walk into a good finance house some time, put 10 ounces (Eg #) on the counter and tell the loans officer you want a 10 k revolving credit facility.

          If they are any good they will give you various options on how to go about that. That do not involve selling the offered security.

          If they want to hold the security.

          Depending on who they are, you need to look at their security, and their relationship with, the FED and IRS.

          Once you get over a few 100 K there are big and small places in Singapore Europe and even the US, that will organise all of that for you, VERY discretely. Most of the entities who do this, don’t really advertise.

          JPM dont advertise where their London vault, is but they have a large one.

          The interest and costs on that loan including bullion storage costs, can be tax deductible.

          You still have a record of the items held, so they can not disappear into a liquidators hands and not reappear. if a facility fails. As the facility does not own the goods. this is why facilities, are better than banks, as banks, will own you money and goods, in certain situations.

          Certain law firms can also help you in this process, as many are looking for safe short/medium term investments, for their investment accounts.

          Bullion seller bank’s which only issue a certificate, are  no good, as they regularly do not hold enough bullion, to cover all the certificates they have issued.

          This is why certified # bars are good, and better than coins. if you buy them the correct way the cost over pure bullion value can be deducted against other income. They are traceable and verifiable without destructive testing. Unless they get melted down.

        • economicminor says:


          The reason I own gold and silver is a hedge against chaos and uncertainty. Like an insurance policy you hope you never need. Which means to me that I want to put my hands on it in those times. So I guess for me what you suggest is not an option but thank you for going over the possibilities.

    • Frederick says:

      Hidflect YUP

  3. TJ Martin says:

    ” Automakers report actual new-vehicle sales by dealers to their customers”

    That contradicts all I’ve learned when it comes to the automotive industry’s reporting of new car sales . From everything I understand the majority of auto manufactures report a car as ‘ sold ‘ .. once it leaves the factory grounds and is sold / floor planned etc to their distributors and dealerships .. not dealer sales/leases to the customer / customers etc . Which is why new car registrations are always ( substantially ) lower than ‘reported’ new car sales even in the best of times .

    • Wolf Richter says:

      Yes, too, and no :-]

      In this article, I mentioned three ways in which auto sales are reported:

      1. monthly, by survey as measured by the Census Bureau as part of retail sales.

      2. monthly, by the automakers, based on data provided by their dealers, reporting actual unit deliveries to their customers, along with direct deliveries from the automakers to large fleets, and along with automaker sales to their own employees under special programs. So for example, on April 4, automakers reported March sales of 1,555,859 units. These are actual deliveries, not estimates or based on surveys.

      This was the data underlying my article of that day:

      3. Quarterly, dollar sales by automakers as part of their quarterly earnings reports. These are global companies, and they may not all split out dollar sales in the US for that quarter. They may instead split out dollar sales for “North America,” along with “Europe,” “Asia-Pacific,” and so on…

      For their quarterly earnings reports, US automakers recognize a “sale” when the unit is invoiced to the dealer. This happens while the unit is still being assembled. So the dealer gets the invoice quite a while before the car gets there. Payment arrangements account for this. Even though the dealer pays for the unit before it arrives, the dealer also gets free floorplan financing for the unit for a number of weeks (it was 6 weeks at Ford when I was in the biz, it might have changed by now).

      I know this is endlessly confusing to everyone. That’s why I try to clarify it in the article. Most of the articles in the media completely ignore the differences, and that’s why there is so much confusion.

      • Emanon says:

        Every day that I go to work, I drive past an empty mall north of Pittsburgh that is now used either as a parking lot for commuters taking the bus or as an overflow storage lot for new cars.

        There are now hundreds of new cars parked there.

        Every week there are more, every month they start a new row of them. The derelict mall is slowly filling up with surplus product.

        Oh the irony ;)

        The auto dealers may be accepting delivery and the automakers may be recording sales, but nobody is driving those cars anywhere.

        Some of them have been sitting there since 2016.

        At this rate, those same cars may still be there, silently rusting away, when 2018 arrives.

        • Johhny Lunch Box says:

          Look at the rv lots. Crammed full and when they cant park more on the lots they open up a new rv sales office a few mile away.

        • MC says:

          Overflow storages are cropping up all over the place: even here in my little hick central I found one, a “gone out of business” industrial equipment maintenance center. It was cleared in early February but before that date it was filled with brand new Nissan SUV’s. A customer of mine found one near the Swiss border (a former customs warehouse) filled with brand new Alfa Romeo’s.

          Cars are just left there until either they start to rot or the landlords hike the rent, then they are removed and shipped to discreet locations (this is one of the best kept secrets of the car industry) for disposal, meaning they are scrapped.

          These cars were never meant to be sold to the public, leasing firms or other customers: they were just manufactured and shuffled around to goose up sales figures.

        • Wolf Richter says:

          Those cars you see are in the dealer’s inventory, and the dealer has run out of space on their lot. They’re not sold as far as the dealer is concerned. Dealers are franchise operations. In the end, they have to do what their manufacturer tells them to. When sales are slow, dealers like to cut orders. But the manufacturer may put pressure on them to order more to keep the plant running. So dealer inventories pile up. I’ve been through this. There were times when Ford practically shoved cars down our throat. And we too had to put them on an off-site storage lot – and our own lot was 9 acres!

        • economicminor says:

          Johnny, I have noticed that about the RVs too. The story is that the Boomers retiring are buying more and more of them. And I see more and more of them on the road.

          But the build out of inventory is quite amazing. There must be a hell of a profit margin for them. One Eugene sales organization rents the Jackson County Fair grounds twice a year and drives hundreds of them here. They do that in a few places in the state and every other commercial on TV is theirs for a couple of weeks.

          Owning an RV, driving it and using it are really not for most people. They are complicated like mini space shuttles with all their systems. I have one and I have had the manual out so many times I am becoming an expert. I have spent countless hours talking to the mfg service line about issues. Getting them fixed at a dealer is a joke. There are so many styles and each style has its own issues and systems and routing. Paying someone who has never seen your rig a $120/hr to work on it is crazy expensive.

          Then there is the driving. They are big, like driving a large delivery truck. Many people just can’t get comfortable diving them so they stay on the major highways. Well if you are going to stay on the major highways, you might as well stay in a nice Hotel or Motel.. It is so much easier. And cheaper..

          Then there is the getting off the major highways and camping. For many it is a scary business. Especially if you don’t have a reservation somewhere. But that isn’t really camping. People worry about the what ifs to the point that they don’t go off. We camp in out of the way Forest Service CGs and they are seldom full and most of the campers are not RVs. We don’t see a lot of them on the really back roads either. People are afraid to get to far out when there are so many things that can go wrong.

          I think the only reason people are buying them right now is the cheap loans.. And you can claim it as a second home and write off the interest IF you even file a complicated return which most people don’t.. So cheap long term loans but I guarantee in a few years if it lasts that long, there will be tens of thousands of low mileage RVs for sale. RVing just isn’t for most people. Especially ones who have lived in a city all their lives. There is no phone service in much of the wild and absolutely NO law enforcement.

        • Frederick says:

          Emanon Who has the money to take on the expense of a new car And just wait till the dollar tanks and gasoline costs skyrocket It will make 2008 look like a walk in the park I’m not going to mention gold because all the anti gold trolls on here will jump all over me By the way gold did fine during the Great Depression

  4. akiddy111 says:

    I’m glad you showed the YOY retail sales census data.

    I read a couple of blogs this morning highlighting the monthly decrease and also the February downward revision and trying to paint that picture in an exclusively gloomy manner.

    Anyways, it’s difficult to reconcile that 5% YOY overall jump with the anemic YOY sales growth seen at malls, restaurants, auto dealerships etc.

    • Wolf Richter says:

      Remember, online sales are BOOMING. And inflation is playing a role in the YOY data (the 5% YOY was nominal, without adjustment for price increases). It’s really hard to make sense of all this data pointing every which way :-]

      • Frederick says:

        Not really I’ve been expecting this for a long long time Frankly I’m shocked the USD ponzu has lasted this long

  5. OutLookingIn says:

    Consumer spending makes up 70 percent of GDP.
    Excluding vehicles and gasoline, the 1QT could only manage a second straight 0.1 percent increase.
    Yet there are those that insist on sky high consumer confidence, such as Econoday reporting a rebound in consumer sentiment to a 17 year high!
    Which makes the BLS CPI report this past week, highly suspect in it’s accuracy as to the true price increases to the consumer.
    To the everyday Main street dweller, these conflicting reports makes it all very confusing, to say nothing of the non-critical thinkers who automatically accept the governmental spoon fed stats as true fact.
    The coming “wake up” call will be epic to behold.

    • Jonathan says:

      It looks even worse since economic parasites such as healthcare costs and rent are taking a larger share of the pie, and also taking population growth into account.

  6. rhs jr- Robert H Siddell Jr says:

    GDP is much closer to negative zero…

  7. Lee says:

    Better the Fed better raise rates………………

    By the way, what is the rate of population growth in the USA?

    Shouldn’t increased population result in increased retail sales?

    • Wolf Richter says:

      Yes it should. The rate is just under 1%. All the per-capita numbers are looking worse than the overall numbers.

    • d says:

      Why when America keeps importing the wrong sort of immigrants legally and illegally.

      Who undercut existing wage rates and conditions, send money home instead of spending it in the US economy where it belongs. Drain Social service etc etc.

      That is before you deal with the HB1’s creating economic hardship for America, by displacing American’s from well paying, to poor paying, or even no job’s.

      Current HB1 and Immigration policies still benefit the corporates, at the expense of Main street and US national workers.

      Minimum wage laws will only make things worse as long as you have illegal and other immigrants continuously undercutting rates and conditions in other sectors and places in the Economy.

      Increasing Spending created by immigration only Happens when you import the wright kind of Immigrants.

  8. Jonathan says:

    One of things is that consumer goods are getting “good enough”, commoditized or replaced by cheaper/better/more convenient technology faster than ever before, mostly thanks to our favorite copycat China. Besides that, not only more people are shopping online, and they are also more savvy at finding and timing deals.

    • d says:

      Which is why you need a National sales tax, then all the privately imported stuff, will get taxed at the border.

      Making some of it uneconomic, to privately import.

      As the sales tax would be applied to the CIF value.

  9. kitten lopez says:

    this isn’t related to this article in particular, but am i wrong, or are a lot of mainstream news articles seeming to follow some of the stories on this site??? it’s not unrealistic or unlikely as in the arts there USED to be an eco-system of the advance guard artist to the patrons, and i’m tickled to keep seeing nytimes et al articles that seem to follow some of the stories Wolf breaks here.

    i find it INTERESTING because journalism is also limping along half dead and i’m wondering if frightened newspaper staff follow blogs like this that’re in the van guard of actually un-earthing Truth anymore, so they can follow up on stories already vetted by the likes of Wolf, here.

    • d says:

      A lot of MSM issues/articles these days are stolen from the fringes, as there are very few real journalist left.

      Bots are writing and rewriting the same thing’s.

      Lefty, Pro LBGT, Anti government issues, are pushed to the fore, by the same group of agenda driven owners. They are selling advertising, and making a profit, not informing in a balanced manner, or supplying news.

      If “new’s” outlets, were banned from using images and videos for 3 months, most of them would go bankrupt, as the, sensationalist, invasive (Frequently illegally obtained or altered/faked ) image, is what sells their advertising, not the printed, or audio content.

      Try visiting your regular web “news” outlets with, images, videos, and Adds, blocked for a while. Then you will see how poor and error filled most of the written content is these days.

      These days, the true Investigative journalist is practically Extinct.

      You cant find a few of the financial ones here.

    • Dan Romig says:

      In my opinion and observations, the NY Times has lost its journalistic integrity and honest reporting. Add in CNN, MSNBC and FOX News too, as they are deep state propaganda merchants.

      RT News and other RT programs (on which Wolf has appeared) tell a more accurate story of global events, although they have their own perspective.

      Very little of MSM report on what I consider to be a major threat to the well-being of US citizens, and that is the static GDP growth versus the continual budget deficits and ballooning national debt. The CBO has projected that in less than a decade, the debt to GDP ration will be nearly one and a half times over. Most people do know that now the debt is greater than GDP.

      Sure, other nations are in the same or worse shape, and yes, the USA can continue to issue bonds and grow the debt, but at some point there will be hell to pay for living beyond our means.

      • Gershon says:

        Six corporations control the media and entertainment complexes in this country. If you want real news and real truth, you aren’t going to find it in the corporate media.

  10. kitten lopez says:

    and i’m missing Petunia.

  11. James says:

    There is a Pratt & Whitney plant that needs to hire 100 more people and they can’t find enough people. Wages start at 15 and go to 20 very quickly. And the reason why they can pay that high is because they have an Air Force contract. Bilk the taxpayers for all they got because when the govt runs out of money the game is over.

    • Frederick says:

      Twenty dollars an hour WOW I was making that as a HS student working for a local contractor in 1970 and gasoline cost 25 cents a gallon

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