A Huge Surge in Government Spending Drives Up GDPNow Forecast – Mish Talk
GDPNow data from the Atlanta Fed, chart by Mish
Chart Notes
- The blue line is the base forecast. It is about all the public sees or hears about when the BEA releases its GDP report.
- The red line is Real Final Sales (RFS). That is the bottom line estimate for the economy.
- The yellow line (new this month) is RFS to domestic buyers, the rest is exports.
- The green line (also new this month) is RFS to private domestic buyers. It excludes government and an exports.
Although it’s October 26, the recent data reflects changes in September due to report lags.
GDPNow Current Estimate
Please consider the October 26 update to the GDPNow Forecast for Q3 GDP, emphasis mine.
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2022 is 3.1 percent on October 26, up from 2.9 percent on October 19. After recent releases from the US Census Bureau, the US Department of the Treasury’s Bureau of the Fiscal Service, and the National Association of Realtors, the nowcast of third-quarter real government spending growth increased from 2.4 percent to 3.8 percent, while the nowcast of the contribution of the change in real net exports to third-quarter real GDP growth decreased from 2.23 percentage points to 2.19 percentage points.
This is the last GDPNow forecast for the third quarter. The first GDPNow forecast for the fourth quarter of 2022 will be on Friday, October 28.
Spotlight on Current Numbers
- Base Number: 3.1 Percent
- RFS: 3.1 Percent
- RFS Domestic: 0.8 Percent
- RFS Private Domestic: 0.2 Percent
Federal Debt Held By the Public
Federal Debt Chart from St. Louis Fed
That chart is through the second quarter of 2022. It’s guaranteed to rise for the third quarter.
Federal Government Outlays 2021 vs 2022
- July 2021: $564 billion
- August 2021: $439 billion
- September 2021: $524 billion
- July 2022: $480 billion
- August 2022: $523 billion
- September 2022: $917 billion!
Data from US Treasury Statements.
Flashback September 15 2022
On September 15, I reported GDPNow Forecast for Q3 Plunges to 0.5 Percent on Weak Consumer Spending
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Here are a couple of pertinent comments I made in that post.
Government spending added 0.6 percentage points to RFS and now helps to prop up the economy.
Quick – Send more money to Ukraine and escalate student loan writeoffs to aid spending.
What Happened Next?
- We had a massive surge in the base forecast from 0.3 percent to 3.1 percent.
- Meanwhile, RFS Private surged all the way to (drum roll please) to 0.2 percent.
Hooray, recession is postponed, assuming the GDPNow estimate is in the ballpark. Lovely.
Exports and government spending led the surge. How much of those exports were military aid?
Blue Chip Forecast
GDPNow vs Blue Chip Forecast via Atlanta Fed
The Blue Chip professional forecasters do not seem as convinced as the Atlanta Fed and I am not either, but the Blue Chip data lags. It’s only through October 5.
The GDPNow model may or may not have gone a bit haywire on trade balances and government spending. We find out tomorrow.
But there is a lesson here: Don’t underestimate a determined president’s ability to boost spending ahead of elections.
This post originated at MishTalk.Com.
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