GDPNow Forecast for Q3 Plunges to 0.5 Percent on Weak Consumer Spending


    by Mish Shedlock, Mish Talk:

    This one was easy to spot in advance. The negative retail sales revision for July and weak numbers for August telegraphed this decline in the GDPNow forecast.

    GDPNow Plunge 

    Please consider the September 15 update to the GDPNow Forecast for Q3 GDP.

    TRUTH LIVES on at

    GDPNow data from Atlanta Fed, chart by Mish.

    The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2022 is 0.5 percent on September 15, down from 1.3 percent on September 9. After this week’s releases from the US Department of the Treasury’s Bureau of the Fiscal Service, the US Bureau of Labor Statistics, the US Census Bureau, and the Federal Reserve Board of Governors, decreases in the nowcasts of third-quarter real personal consumption expenditures growth and third-quarter real gross private domestic investment growth from 1.7 percent and -6.1 percent, respectively, to 0.4 percent and -6.4 percent, respectively, was slightly offset by an increase in the nowcast of third-quarter real government spending growth from 1.3 percent to 2.0 percent.

    The up-down, up-down pattern of the GDPNow forecasts finally collapsed into a down-down pattern on weak jobs followed by weak retail sales data.

    Base Forecast vs Real Final Sales

    The real final sales (RFS) number is the one to watch, not baseline GDP.

    RFS ignores changes in inventories which net to zero over time. This is a good reason to ignore the talk of two quarters of declining GDP being a recession.

    Spotlight on Current Real Final Sales (RFS) Estimate 

    • Total: 1.1 Percent (Lead Chart)
    • Total Domestic: 0.0 Percent
    • Total Private Domestic: -0.4 Percent

    The real final sales number is the bottom line estimate for the economy. The rest is inventory adjustment that nets to zero over time.

    Real private sales to final domestic purchasers fell to -0.4 percent from +0.6 percent on September 7.

    Government spending added 0.6 percentage points to RFS and now helps to prop up the economy.

    Quick – Send more money to Ukraine and escalate student loan writeoffs to aid spending.

    September 7 Comments 

    Let’s review my September 7 comments from GDPNow Model for the Third Quarter Surges Then Immediately Dives, What’s Happening?

    Retail sales plunged in May after a strong April, and that’s when housing started to crumble as well.

    1.9 percent on real final sales is not recession territory, but I strongly believe that will not hold up. GDPNow forecasts tend to start out strong then fade as the quarter progresses.

    There is still two months of data for Q3 coming up. Retail sales and housing rate to be weak. But will they be weaker than the model expects?

    My guess is yes.

    For the GDPNow model estimate to sink, the data does not have to be weak. It does have to be weaker than the model projected.

    Today, the retail sales estimate was both weak (irrelevant to the model), and weaker than the model expected, the pertinent factor.

    When I saw the big negative revision to the July retail sales number, I was pretty confident the data was weaker than the model expected.

    Factoring in Revisions and Inflation, Retail Sales Remain Very Weak

    Real vs Nominal Advance Retail Sales Detail 2022-08

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