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One of Wall Street’s favorite forecasts for the US economy is looking red-hot, but it may not last

firefighters extinguisher

  • The Atlanta Federal Reserve's GDPNow model forecasts 4.1% growth for the second quarter, the strongest in nearly four years. 
  • It's probably too soon to count on that being accurate. 
  • Historically, big spikes in the model have been short-lived as the model incorporated more complete data on the economy. 

The Atlanta Federal Reserve's GDPNow model is at it again.

Its latest weekly forecast is that the US gross domestic product will grow at an ample annualized rate of 4.1% in the second quarter. That would be a nice jolt from the first quarter when the economy grew 2.3% according to an advance estimate. 

But don't count on the Atlanta Fed's model to be on the money, because big spikes in its forecasts tend to disappoint. 

This chart, which Bloomberg Chief Economist Michael McDonough highlighted on Twitter, shows that the GDPNow forecast tends to roll over after big spikes like the one that's in place for Q2. 

5 16 18 atlanta fed COTD

But it equally shows that often, the forecast ends up in the ballpark. After all, it takes into account the data on consumption, exports, business spending, and other inputs that go into the Commerce Department's official reading on the economy. This reading, like the GDPNow model, is revised several times as more comprehensive data is released. The GDPNow model was revised up to 4.1% from 4% last week because of strong retail sales data for April, led by spending on clothes. 

There are times, like the second and third quarters of 2014, when the economy's performance blows past the GDPNow model. So it may be unwise to conclude that this won't happen again.

We'll know for sure as the Commerce Department releases its estimates of second-quarter GDP, starting on July 27.

SEE ALSO: A 'self-fulfilling prophecy' is making the housing market more hellish for first-time buyers

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