On July 3 the Atlanta Federal Reserve’s GDP forecast for second quarter GDP growth climbed to 3% year over year. That’s up from a forecast on June 30 for 2.7% growth for the quarter that ended on June 30. If the forecast proves accurate that would be good news for incomes, the economy, and a stock market that has lately been searching for an upward trend.
The problem for the forecast is easily summed up in one word: autos. On July 3 automakers reported that June sales fell by 3% from June of 2016. That marked the sixth consecutive month where sales have lagged last year’s levels. The lower sales have led to a drop in auto sector employment of about 2% so far in 2017. No one is precisely sure of why auto sales are falling although uncertainty about government policies on infrastructure spending and tax cuts might be a reason. Economists also point to the possibility that tighter credit markets and more expensive car loans have damped sales. Whatever the reason, auto industry analysts are predicting that sales will continue to trend lower for the next six months.
All of which is enough to put the GDPNow forecast in doubt. The last time automakers reported monthly sales–back on June 5–it set off a downward trend in forecasts in the Atlanta Fed’s model. The drop after the decline in May sales reported back on June 5 took the GDP Now forecast from 3.4% on June 2 to 3.1% on June 5. The downward trend finally bottomed at 2.7% annual growth on June 28.
In that context the increase in the forecast to 3% on July 3 doesn’t amount to much more than taking back some of the momentum the economy lost in this model since the beginning of June. The recent forecast for 3% year over year growth is still below the 3.4% year over year growth forecast back on June 2 by this model.
Maybe the most accurate thing to say about this economy is that–like the stock market–it doesn’t show much in the way of a trend either up or down.