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Wednesday, December 23, 2015 12:41 PM

4th Quarter GDPNow Forecast Plunges to 1.3% Following Housing and Other Data; What's Next?

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In the wake of recent data, the 4th quarter GDPNow Forecast dipped to 1.3% from 1.9% on December 16.

From the Atlanta Fed: "After yesterday's third-quarter GDP revision and this morning's personal income and outlays release, both from the U.S. Bureau of Economic Analysis, the nowcast for fourth-quarter real consumer spending growth fell from 2.6 percent to 2.1 percent. The nowcast for real residential investment growth fell from 8.0 percent to 0.9 percent after yesterday's existing-home sales release from the National Association of Realtors."

I took one look at recent housing data and concluded GDP would take a big hit vs. prior expectations. And that's precisely what transpired given the oversized plunge in residential growth from 8% to 0.9%.

But sometimes things do not turn out as appears intuitively obvious.

Such was the case following strong a construction report on December 1 in which the GDPNow model forecast took a dive only to recover on other data later, then plunge as we have seen today.

For an explanation as to how this happens, please see Why Does GDPNow Model Sometimes Move Counter to Economic Releases?

If Christmas sales are weak, 4th quarter GDP will be flirting with zero.

Mike "Mish" Shedlock

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