By Graham Summers, MBA | Chief Market Strategist
Whoops!
You know your economic model is doing a terrible job when you watch it blow up in a matter of days. Recently, investors got a taste of that with the Atlanta Fed’s GDPNow measure.
GDPNow is meant to be a real-time (rather than backwards looking) measure of economic activity. It’s a major “go to” tool for investors looking to monitor if the economy is expanding or starting to collapse.
I bring all of this up, because the GDPNow measure entered a free-fall in late February, with its growth rate plunging from 2.9% to NEGATIVE 2.8% in the span of just one month.
Seeing this, investors panicked, believing the economy was entering a recession at a rapid clip. I have little doubt that this contributed to the aggressive sell-off we’ve been seeing in stocks since late February.
There’s just one issue with GDPNow’s collapse: it’s 100% bogus.
It turns out that gold imports to the U.S. rose rapidly during this time from $13 billion to $36 billion, and the GDPNow model inaccurately took this to mean that the trade deficit was exploding which it interpreted as bad news for the economy.
Don’t believe me?
The Atlanta Fed issued a series of statements on X last Friday, in which it admitted that without this screw up, the model would show the economy was still growing by 0.4%, NOT collapsing by 2.4%!
See for yourself.
Talk about a screwup! The economic model that you tout as being one of if not THE best real-time measures of GDP proved to be practically worthless. Sorry to all the investors who saw this and panicked, thinking the U.S. was in recession!
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Best Regards
Graham Summers, MBA
Chief Market Strategist
Phoenix Capital Research
