Atlanta Fed Predicts Weak 2Q GDP, Nailed 1Q Forecast

The economists at the Federal Reserve Bank of Atlanta who nailed their prediction on the dismal first-quarter GDP number have released their forecast for second-quarter economic growth – and it ain’t pretty.

Using a sophisticated forecast model called GDPNow, the Atlanta Fed is predicting that second-quarter GDP will clock in at 0.9%. That’s well below the 3.25% estimate many economists have been forecasting as the economy ostensibly bounces back from a weak first quarter.

The Atlanta Fed correctly predicted weeks ago that first-quarter GDP would be much worse than the 1% consensus offered by economists. The estimate from the Atlanta Fed was 0.1%, or slightly lower than the actual GDP of 0.2% reported yesterday by the Commerce Department.

So apparently their forecasting ability is to be taken seriously. That’s a problem because conventional wisdom has held that the silver lining to a weak first quarter is a strong, bounce back second quarter.

A year ago GDP declined by 2.9% in the first quarter after one of the harshest winters on record. GDP then bounced back in the second quarter to a robust growth rate of 4.6%.

The folks at the Atlanta Fed believe that may not be the case this year.

“The initial GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2015 was 0.9 percent on April 30. Real GDP grew 0.2 percent in the first quarter, according to the 'advance' estimate from the U.S. Bureau of Economic Analysis, 0.1 percentage point higher than the GDPNow model forecast,” The Atlanta Fed said in a report released Thursday.

The first-quarter GDP figure was widely expected to report a downturn in economic activity, just not as weak as the one forecast by the Atlanta Fed. The government blamed another unusually harsh winter, a dock workers strike in California, cheap oil prices and a strong dollar for the slowdown.

With the weather warming up nationwide and the dock workers strike settled, two of those factors will not have an impact on the second quarter. Meanwhile, oil prices have risen a bit but are always volatile, as is the value of the dollar.

In any case, a strong – or at least stronger – second quarter has been predicted by everyone from officials at the U.S. Federal Reserve to economists at many of the big Wall Street banks. Now the folks at the Atlanta Fed are saying they're wrong. Uh-oh.