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“Surprisingly Strong Economy”: Atlanta GDP Forecast Dives

Friday, March 3, 2017 21:07
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By: C.Jay Engel
GDP graph

Well that was fast. Yesterday we observed the silliness of Fed president Kaplan’s idea that it was consumers that were going to push GDP up over 2%. Today, we learn the following (source):

Turning to spending and income, personal consumption expenditures could muster only a 0.2 percent gain, 1 tenth below the Econoday consensus in a marginal gain that belies the enormous strength underway in consumer confidence. And when adjusted for inflation, spending fell 0.3 percent for the largest drop since September 2009.

There goes the consumer-led GDP hopes. In response, the Atlanta Fed’s GDPNow model dipped hard: from a 2.5% forecast to a 1.8%.

Just yesterday, the Fed was referring to a “surprisingly strong economy” which was used as support for interest rate hikes “sooner than later.” So much for that. Further against the strong economy theme is the fact that, while GDP forecasts for first quarter 2017 were above 3% due to construction data forecasts, today’s construction numbers actually fell 1%! 

Let’s summarize: the GDP rate was supposed to grow due to consumer spending, which came in much lower than expected. Meanwhile, the GDP forecasts had been higher in the first place due to construction forecasts, which today came in much lower as well.

But we’re all supposed to scratch our heads and fathom what would we do without the Fed at the helm?

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