Even As Stocks Push Higher, Clouds Gather For The U.S. Economy

While President Donald Trump has said that he expects some “very good numbers” on economic growth shortly and stocks hit new highs, economic data suggests the economy is growing by less than expected.

The New York and Atlanta Federal Reserve banks both lowered their estimates of Gross Domestic Product Friday. The Atlanta Fed’s GDPNow model forecasts seasonally adjusted real GDP growth is 2.9 percent, down from its prior forecast of 3.2 percent. The New York Fed’s Nowcast fell to 1.9 percent, from 2.25 percent a week ago.

The distance between the forecast indicates that forecasting economic growth is far from an exact science. For that matter, even calculating actual economic growth is not an exact science, as demonstrated by the fact that GDP numbers are frequently revised in the months that follow their initial release. The staffs of the Fed banks create the projections using economic models that can produce different results even when looking at the same data.

But both the Atlanta and New York forecasts show a discernible trend toward slowing growth. Earlier in the quarter, the Atlanta Fed was producing growth forecasts above 3.5 percent and even above 4.0 percent. Forecasted growth declined steeply in late May and has not recovered as new data has come in. The June 16 forecast was the first to come in below 3.0 percent for the second quarter.

The New York Fed’s second-quarter forecast also started out near or above 3.0 percent and has been mostly falling since then. It hit 1.8 percent in early May, bounced back a little, but is now once again near its low.

The most recent decline was driven by disappointing data on housing starts and export prices, indicating that residential investment and net exports will have a smaller contribution to GDP growth than earlier data suggested. Friday morning, U.S. consumer sentiment also unexpectedly declined.

Bloomberg’s U.S. Economic Surprise, which measures whether incoming economic data beat or miss expectations, fell below zero for the first time this year. It is now at it lowest point since Trump was elected in November. This suggests the economy is losing momentum.