December quarter GDP growth projections are all over the map

The U.S. Bureau of Economic Analysis’s (BEA) third estimate for the fourth September GDP growth rate came in at 33.4%, after falling 5.0% in the fourth March and falling 31.4% in the fourth June . Even after a dramatic recovery, the economy is still 3.4% lower than it was in the fourth December last year.

Keep in mind why the September quarter was so large due to the sharp decline in the June quarter. The way the BEA measures GDP growth is to take the quarter-to-quarter change and essentially multiply it by four. In a more “normal” economy, this approach has estimated GDP growth well, but when the economy goes through such trends it increases both negative and positive trends.

A key challenge for the economy is that the recovery in Covid-19 cases will affect many of the sectors that sparked the recovery in the fourth September. As can be seen in the chart below the main contributors were Health Care and Social Support, but with coronavirus cases selected surgeries and rounds will be cut back. The third largest donor, Accommodation and Catering Services, will also be hit when restaurants close. This sector should be a drag on the fourth December GDP growth rate.

Another analysis of the reversal is to look at SAAR, or Quarterly Adjusted Annual Rate, of change in dollars from the fourth June to September. Oren Klachkin at Oxford Economics found that Accommodation and Food Services saw the biggest rise from depression rates with an increase of $ 344.2 million and Arts, Leisure and Recreation rose $ 291.7 million. However, these are still 28% below pre-coronavirus levels.

What’s happening now in the economy?

Unfortunately, the economic downturn is spreading and President Trump’s signing of a coronavirus relief bill and government funding will only make it worse. This can be seen in several indicators of the economy and consumer confidence.

The first chart is from Oren Klachkin at Oxford Economics, and looks at the economy in five geographical areas. While it shows a slight decline in late November from the economy weakening after September, it appears to have returned to a downward slope.

The latest reading on consumer confidence showed a decline, entering the holiday season was not a good sign along with more coronavirus cases, hospitalizations and deaths. The Conference Board stated, “the Index of Consumer Confidence^® it declined in December, after declining in November. The index is now at 88.6 (1985 = 100), down from 92.9 in November. The current position index – based on consumer assessment of the current industry and labor market situation – fell sharply from 105.9 to 90.3. However, the expectation index – based on consumers’ short-term forecast for revenue, business and labor market conditions – increased from 84.3 in November to 87.5 this month. ”

Lynn Franco, Senior Director of Economic Indicators at the Conference Board, said: “Consumer assessment of the current situation fell sharply in December, as the recovery of COVID-19 continues to slow confidence. . As a result, consumer holiday resolutions, which had improved significantly in October, have returned. On the flip side, as shoppers continue to hunt at home, intentions to purchase tools have risen. Overall, growth appears to have slowed further in Q4, and consumers do not see the economy experiencing any significant upturn in early 2021. ”

All three of these indexes are shown in the graph below from Gregory Daco at Oxford Economics, and are all essentially at the lows reached a few months ago.

What is the fourth GDP forecast for December?

The Federal Reserve Bank of Atlanta publishes data and a graph that estimates the GDP growth rate in the current quarter. It has perhaps the highest growth rate of almost every analyst predicting the economy. Keep in mind that Fed Atlanta’s GDP forecast is based on a formula from previous quarters and the impact of Covid-19 could have a significant impact on the estimate.

The GDPNow model shows a 10.4% growth in the fourth December compared to the Blue Chip consensus range of 1% to 6%. Gregory Daco at Oxford Economic was at 6.1% two weeks ago.

St. Louis Federal Reserve Bank has a real GDP forecast that is updated once a week. The current forecast for the December quarter is 4.5%.

And finally, the latest estimate by the Federal Reserve Bank of New York is 2%. As can be seen from the chart it has declined steadily over the four months. This compares to the sharp rise of the Atlanta Fed in November and has been relatively flat since then.