Q2 Puzzling GDP Forecasts (4.5% vs. 2.7%)

Trump fans have been calling for

4% real economic growth in 2018,

since the tax cuts in late 2017.

One recent GDP forecast

by the Atlanta Fed was for

over a 4% annual growth rate

in 2Q 2018 !

I usually assume the Atlanta Fed
estimate starts out much too high,
but is accurate by the end of the quarter.

For the July - August 2018 newsletter,

I used their 2Q forecast to write

the following sentence about

average GDP growth during Trump's 

first six quarters as President: 

 "Trump's GDP growth through 2Q 2018 

is going to be just a few tenths of a point 

better than Obama's pitiful +2.2% average 

from mid-2009 through 2016."

On Friday July 27, 

the Commerce Dept.'s 

Bureau of Economic Analysis

will release its “advance estimate” 

of GDP growth for the second quarter

of 2018.

On August 29, the “second estimate”. 

On September 27, the “third estimate.” 

And more revisions in future years.

The “advance estimate” 

gets the most media attention.

The Atlanta Fed's GDPNow model

predicts a +4.5% annual growth rate

for 2Q, as of July 18.

https://www.frbatlanta.org/cqer/research/gdpnow.aspx

But the New York Fed's Nowcast model

only predicts a +2.7% annual growth rate

for 2Q, as of July 20.

https://www.newyorkfed.org/research/policy/nowcast

That's an unusually large difference!

“Real” consumer spending

rose only +2.6% in April, 

year-over-year, 

and only +2.3% in May,

year-over-year. 

That doesn't suggest

4.5% real GDP growth.

June consumer spending data 

will be released July 31,
so only an estimate can be used
for Friday's GDP estimate. 

Annualized GDP growth rates 

are adjusted for inflation

to get “real” growth rates. 

Consumer price inflation 

has been rising sharply,

so maybe Atlanta Fed model 

is underestimating inflation?

Escalating trade war concerns

have caused exports to surge, 

and inventories to swell --

both are counted as good news

for GDP data -- perhaps adding

up to two percentage points 

to 2Q 2018 real GDP growth?

Examples:

US soybean exports 

were up almost +9,400%, 

at an annual rate,

in the last three months, 

while crude oil 

and fuel oil exports 

surged by +244%.

Foreign firms appear to be 

‘stockpiling’ US exports,

to avoid higher tariffs

expected during a trade war.

US companies are also

building inventories, 

in imported electrical goods, 

machinery equipment, 

motor vehicles and parts.

These trends are positive 

for 2Q 2018 Real GDP, 

but very likely to be 

one-time adjustments

( of course you'll never hear 

that analysis from Trump ! ).

Export and inventory growth could 

make the biggest contribution to GDP

growth since 4Q 2011, when Real GDP 

grew at a +4.6% annual rate

( but afterwards, Real GDP averaged 

only +1.6% over the next five quarters! )