Some years ago, I used to track the Atlanta Fed GDPNow forecast religiously. It didn’t take me long to realize that the GDPNow forecast was just another tool to manipulate public perception. That’s why I stopped tracking it a couple of years ago and recommend you do the same.
The bogus nature of the GDPNow forecast is, well, a picture is worth a thousand words.
The forecast for GDP for Q3 2018 was a whopping 5 percent back at the end of July. Everybody was like wow, that’s incredible and just another indication that the economy is getting stronger… NOT.
Today, the GDPNow forecast is 3.8%. We even got two headfakes to the upside. What a lovely line to follow on the GDPNow chart.
The Atlanta Fed explains the drop:
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2018 is 3.8 percent on September 11, down from 4.4 percent on September 5. After last Friday morning’s employment report from the U.S. Bureau of Labor Statistics, the nowcasts of third-quarter real consumer spending growth and third-quarter real gross private domestic investment growth decreased from 3.3 percent and 15.9 percent, respectively, to 3.0 percent and 14.0 percent, respectively. The model’s estimate of the dynamic factor for August—normalized to have mean 0 and standard deviation 1 and used to forecast the yet-to-be released monthly GDP source data—declined from 1.11 to 0.41 after Friday’s employment report.
This is a great example of why the GDPNow website is useless for stock trading and investing. Had you bought the market because the 5 percent pump at the end of July, you’d be left holding the bag now that it has dumped to 3.8 percent.