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June 1, 2016 | GDPNow Forecast Dips to 2.5% Following Construction Report; Rate Hike Odds Dip Slightly

Mike 'Mish' Shedlock

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

In the wake of a construction report that was far far weaker that it looked even with upward revisions, the Atlanta Fed GDFPNow Model for second quarter GDP dipped 0.4 percentage points to 2.5%.

Rate hike odds for June were flat at 22.5%, but July hike odds dipped a bit to 57.6%.

Latest forecast: 2.5 percent — June 1, 2016

GDPnow 2016-06-01

“The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2016 is 2.5 percent on June 1, down from 2.9 percent on May 31. After this morning’s construction spending release from the U.S. Census Bureau and this morning’s Manufacturing ISM Report On Business from the Institute for Supply Management, the forecast for real residential investment growth decreased from 7.9 percent to 4.2 percent, the forecast for real nonresidential structures investment growth decreased from -2.8 percent to -6.5 percent, and the forecast for real government spending growth decreased from 1.2 percent to 0.4 percent.”

June Rate Hike Odds

fedwatch 2016-06-01A

July Rate Hike Odds

fedwatch 2016-06-01B

CME FedWatch shows rate hike odds for June remained at 22.5% following the construction report. Odds of a hike in July fell to 57.6% from 59.5%.

Friday’s jobs report will seal the fate for June. Further economic reports will determine July’s fate.

Despite the massive parade of warnings from Fed governors, the Fed is highly unlikely to hike unless it can convince the market that it will.

Meanwhile, the Fed keeps repeating Hikes Data Dependent. Data has been mixed at best.

Addendum

A reader asked “Why doesn’t the Blue Chip consensus change when new data arrives?”

I have addressed this before, but looking at the chart this is a particularly good time to do so again.

Pat Higgins at the the Atlanta Fed explains …..

“Hi Mish, The Blue Chip forecasts are always published on the 1st and 10th of the month. Furthermore, on the graph, we use the “survey” dates, which are about 4-6 days before these publication dates. This implies the Blue Chip forecasts will, at a minimum, lag about 5 days behind GDPNow and can lag as much as 25 days near the end of each month. If you have any more questions, just let me know.”

I posted that a long time ago. I should have repeated that this month.

Mike “Mish” Shedlock.

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June 1st, 2016

Posted In: Mish Talk

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