Welcome Aboard! Atlanta Fed And IMF Cut Their GDP Estimates

Welcome Aboard! Atlanta Fed And IMF Cut Their GDP Estimates - consensus cartoon 07.29.2015

 

For the record:

  • Today, the IMF cut its growth outlook for the global economy by 0.2 percentage points to 3.4%.
  • Over the weekend, the Atlanta Fed (once again) cut its forecast for 4Q U.S. GDP to 0.6%. 

 

For those of you keeping score at home, we called it well ahead of them.

 

Our non-consensus macro team's #GrowthSlowing theme is 18 months old now, which we continue to reiterate. Our most recent 73-page Macro themes deck highlights the increasing probability of a U.S. #Recession in the 2Q or 3Q of this year. (To read more about our Macro team's non-consensus themes deck ping sales@hedgeye.com.)

 

Clearly, we've been front-running economic reality.

 

A few questions: Does anyone actually believe these central planning bureaucrats anymore? And do their often rosy economic forecasts have any credibility? 

 

We'll let you make up your own mind.

 

Here's Reuters:

 

"Twenty-eight out of the 30 initial calendar year forecasts by the IMF and World Bank for global, developed market and emerging market GDP growth for 2011-2015 proved too optimistic, in many cases wildly so."

 

 

Similarly, over the past few weeks, the Atlanta Fed has taken the hatchet to its own 4Q U.S. GDP estimate. As of Friday, that forecast is 0.6% versus 2.2% in late November. 

 

Welcome Aboard! Atlanta Fed And IMF Cut Their GDP Estimates - atl fed forecast

 

???

 

We're scratching our heads. Incidentally, Atlanta Fed head Dennis Lockhart doesn't seem to believe his own economic forecasts. Just last week, Lockhart said he was "mildly optimistic" that strong domestic consumption will help U.S. GDP growth in 2016.

 

Hang on. Where's the evidence of that? Below is a chart from our macro team showing the year-over-year slowing in personal consumption expenditure...

 

Welcome Aboard! Atlanta Fed And IMF Cut Their GDP Estimates - PCE

 

... And here's Lockhart's own Atlanta Fed GDP revision from Friday:

 

"The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2015 is 0.6 percent on January 15, down from 0.8 percent on January 8. The forecast for fourth quarter real consumer spending growth fell from 2.0 percent to 1.7 percent after this morning's retail sales report from the U.S. Census Bureau and the industrial production release from the Federal Reserve." (Emphasis added)

 

This disconnect between economic reality and the Fed's forecast isn't surprising if you've been listening to us. We've long chronicled the Fed's "serial over-optimism." By our tally, the Federal Reserve’s GDP forecasts, the "dot plot," have consistently overestimated growth, every year over the past 5 years, to the tune of 100 basis points.

 

So remember, as Hedgeye CEO Keith McCullough is fond of saying "One of the biggest risks to financial markets right now is believing the Fed's [or the IMF's] economic forecast."

Welcome Aboard! Atlanta Fed And IMF Cut Their GDP Estimates - Fed forecast cartoon 03.02.2015


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