Soaring US Trade Deficit Smacks the Atlanta Fed GDPNow Forecast

Two Atlanta Fed GDPNow measures took a 0.8 percentage point dive on May 31. Let’s go over why.

Please consider the May 31, 2024 GDPnow Forecast for second quarter GDP.

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2024 is 2.7 percent on May 31, down from 3.5 percent on May 24. After recent releases from the US Census Bureau and the US Bureau of Economic Analysis, a decrease in the nowcast of second-quarter real personal consumption expenditures growth from 3.4 percent to 2.6 percent was partly offset by an increase in the nowcast of second-quarter real gross private domestic investment growth from 5.1 percent to 6.3 percent, while the nowcast of the contribution of the change in real net exports to second-quarter real GDP growth decreased from -0.06 percentage points to -0.60 percentage points.

The important number in the above chart is the Real Final Sales forecast.

The difference between the base forecast and RFS is inventory adjustment that nets to zero over time.

RFS is the bottom lines estimate of the economy.

“This Rates to Smack GDPNow”

Sommers made a reference the trade deficit which increased by 7.7 percent in April. I looked up the numbers. The trade data wasn’t “fairly awful” it was downright awful.

Advance Indicators

I took one look at the numbers and stated “This Rates to Smack GDPNow”.

My statement may seem obvious, but it’s not. The report itself is irrelevant. What matters is what the report does vs what the model predicted it would.

Sometimes bad data causes the GDPnow forecast to rise. I made my call based on a spot assessment that that the model would not have expected such an awful number.

Weakening Data All Over the Place

Data is weakening left and right. I believe we are headed for recession this year, but we are not there yet.

For discussion, please see Philadelphia Fed GDPplus Revised Significantly Lower, But No Recession Yet