The GDP forecast was up 0.4 percentage points this week, and is now 0.6%. This is entirely due to a larger than expected (by the model) rise in business inventories. In the past two weeks, the model went from a $70 billion negative swing in inventories to a small $7 billion negative swing. That’s a big difference, and it shows.
Other data this week (not incorporated into the model) was mildly positive. Retail sales were up just 0.1%, but with inflation low, and gas prices falling, there is some strength underlying that number. Industrial production was up a big 0.9% in May, with manufacturing also up 0.9%.
Don’t get too excited about the big manufacturing number. Manufacturing Industrial Production fell in the previous month, and that didn’t indicate that the economy was collapsing. Just as this month’s big number doesn’t mean a sudden boom. The overall data picture is consistent with moderate growth, and moderate growth means big numbers some months, but small months in others.
The Fed forecasts changed little this week, despite the new data. The Atlanta Fed remains surprisingly high (at 3.0%), the St. Louis Fed low (0.8%, not much more than my model’s 0.6%) and the New York Fed at a moderate 1.9%.
Moderate economic growth, low (really no) inflation and a tight job market. Not a bad picture at all. My low real GDP Nowcast is a bit misleading in the story it is telling.