GDPNow’s final forecast for Q4 2022, what does it say about the recession? -Chat Mish
- The blue line is the base forecast. This is all the public sees or hears when the BEA publishes its GDP reports, but it’s not the most important thing.
- The red line is Real Final Sales (RFS). That is the final estimate of the economy and what matters most.
- The yellow line is RFS for domestic buyers
- The green line is RFS for private home buyers. Excludes government and exports.
Actual Final Sales are the true bottom line for the quarter. The difference between the baseline report and the RFS is the inventories going down to zero over time..
The mainstream media follows the reference number, not what matters most.
GDPNow Current Estimate
Consider the final update of the GDP Forecast Now for GDP in the fourth quarter of 2022.
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2022 is still 3.5 percent on January 20.
This is GDPNow’s latest forecast for the fourth quarter. GDPNow’s first forecast for Q1 2023 will be on Friday, January 27.
Will GDPNow Hot Hand continue?
The Blue Chip Consensus is an expensive proprietary subscription. The Atlanta Federal Reserve may release some results with a delay.
The December data (reported in January) has been miserable across the board. That doesn’t necessarily matter. What matters is what the data is versus what the models expected.
We have no idea what Blue Chip was expecting.
The GDP model has a very hot hand in 2022. But historically, it has had some pretty big flaws at times.
Assuming Blue Chip’s forecast eases a bit on recent reports and downward revisions to retail sales and industrial production, that would put their estimate at about 1.5 percent.
Q: Is that recession territory?
A: Yes, because it is a reference forecast and that is not what matters.
There are 1.5 percentage points between GDPNow’s baseline forecast and actual final sales. Subtract 1.5 percentage points from Blue Chip’s estimate and you’re right at zero with incredibly weak data across the board.
New Home Sales Cancellations
KBH’s cancellation rate was an astonishing 68 percent.
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The new home sales report is another swamp of negative review in November
- August 661,000 to 646,000
- September 580,000 to 559,000
- Oct 632,000 to 605,000
Remember my publication of December 23, The new home sales report is another swamp of negative review in November
negative groundhog day
Those revisions come on top of the negative revisions for October and September, now reduced again.
Is this a joke or what? Negative groundhog day perhaps?
What about cancellations?
The Census Bureau does not subtract cancellations from its reports, and cancellations due to rising mortgage rates have been huge.
To repeat, none of these reviews include cancellation, and cancellation rates have been as high as 25 percent. [Make that as high as 68 percent]
In declining sales environments and economic downturns (now), the Census Bureau drastically overstates sales, even if we ignore the revisions.
In economic upturns, the Census Bureau underestimates sales.
In economic turns, expect revisions. Heading into recessions, all revision rates will be negative.
Expect to see negative reviews on jobs, more negative reviews on retail sales, and massive misses on new home sales that won’t even get reviewed because the reporting methodology is totally flawed.
I’ll do a follow-up post later this weekend, including a discussion with bond guru Lacy Hunt about the timing of the recession.
In the meantime, note another huge inventory build (assuming GDPNow is correct on that score), right in the face of massively weakening data across the board.
cast of characters
- Mad Hatter: Jerome Powell, Fed Chairman
- Red Queen: Janet Yellen, Secretary of the Treasury
- March Hare: John Kerry, US Presidential Special Envoy for Climate
- Humpty Dumpty: President Biden
- Alice: you decide
In case you missed it, check out my experience in Wonderland. Alice debates between the Mad Hatter and the Red Queen about the timing of the recession.
This post originated from mishtalk.com.
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