GDPNow Forecast Is 4 Miles High and Falling fast

Real Final Sales at 2.3 percent is the number to watch. The quarter is over half over but data lags so badly that we have less than a month to chart. I started my third quarter chart today. The next GDPNow report is on August 26. Key Numbers - Baseline GDP Nowcast: 4.0 percent down from an amazing 6.2 percent. - Real Final Sales: 2.3 percent down from 4.2 percent - Real Final Private Domestic Sales: 2.7 percent down from 5.0 percent. Evolution of 2026 Q3 vs Blue Chip Consensus The initial reports are often wild, as was the case here. I seldom discuss the initial numbers and did not comment on the 6.2 percent Nowcast. With GDPNow at 6.2 percent, the Blue Chip consensus was roughly 2.2 percent. The Number to Watch Real final sales is the bottom-line estimate of the economy. The difference between the base forecast and real final sales is Change in Private Inventories (CIPI) that nets to zero over time. Contributions GDP CIPI is the largest contribution to the nowcast at 1.73 percentage points. Unfortunately, there is no clean way to extract all of the AI-related components but we can see nonresidential equipment at 0.40 PP and Intellectual Property ay 0.38 PP. How Much Did AI Spending Contribute to Second-Quarter 2026 GDP? On July 31, I addressed the question How Much Did AI Spending Contribute to Second-Quarter 2026 GDP? Five charts show the AI impact for every quarter starting 2025 Q1. AI-Related Percent of Change in Real Private Fixed Investment - 2025 Q1: 123.06 percent - 2025 Q2: 124.74 percent - 2025 Q3: 121.22 percent - 2025 Q4: 357.48 percent - 2026 Q1: 126.40 percent - 2026 Q2: 68.81 percent Click for more details. This economy is extremely unbalanced. I suspect most of these recent economic reports have been massaged to give the impression inflation is falling (at least faster than it might be). I suspect this is to give Warsh a basis for not raising rates. I expect the numbers to spring back up after the Sept Fed meeting. I suppose 60 months of failing to reach the 2% target is not enough of a reason to hike. Isn’t it the debt that Trump promised would fall? Oops another lie… Everything is unbalanced these days, the economy is just one of sector. Ham-handed impulsive interventions in markets and deals can only have that effect. Imagine Trump’s diaper when he saw 6.2%. meanwhile: AI Hyperscalers have pre-ordered almost all of 2027’s global RAM supply, increasing prices by 500%, and leaving almost none for smartphone & PC manufacturers. https://www.tomshardware.com/pc-components/ram/memory-prices-climb-500-percent-in-12-months-up-to-10x-the-lowest-ever-tracked-prices-128gb-of-ddr5-now-usd3-399 Credit markets, environment, everything is being heavily taxed and leveraged for this Moby Dick pursuit. One unknown is the AI build-out. Some concerns that we are building more than we need and that AI can exist in a much smaller footprint. I suspect if that is true, the economy will really slow. Other thoughts the threat to jobs will come but it is still a work in progress AI can do jobs really fast, but then they need to be edited by humans to fine-tune. So yes savings, but not the massive change predicted yet. So much money thrown so hard and fast up front at a field with such fast evolution can easily be wrong-footed. I’m sure Musk will keep coming up with cosmic-scale dislocating dream cartoon projects. Like Trump, there have been ever-new legions of suckers for that kind of pitch, so far. Will there be an industry of reconstituting farmland and human-scale infrastructure and life? There are plenty of cities which have already departed that measure of things. The data center boom is about to go bust. New methods for AI are already coming out that use far less computing power. Lots of people will be bagholders. https://www.youtube.com/watch?v=4S8I22ybG2c This is why big companies are desperately trying to get people against open weighted LLMs. They need to own the concept of air so they can sell it to suckers. As someone involved in the C level of a company riding the AI wave, it’s more outright stupid than unbalanced. Businesses have no clue how AI works and you have plenty of Jojo types who are dim enough bulbs to sign huge contracts for stuff they don’t understand. The latter is a big part of the “boom” because many companies in my sector don’t plan on delivering squat, they’ll take the money and deliver an interactive toy with zero economic value. This entire crisis is the result of decision makers being largely tech illiterate as a whole. It is exceedingly easy to sell someone what they want to hear when you have AI, which is exceedingly good at showing people exactly what they want to see with no depth. Depth doesn’t matter when you’re selling stuff to people who don’t understand what the blinking lights mean though, so by the time they realize it isn’t working they’ve blown through reams of cash and publicly invested too much to admit they screwed up. In turn you have a cycle where companies massively over invest but never admit they did so in order not to scare shareholders. It is in essence the perfect storm for creating an economic mirage. There is going to be a big shake-out of AI companies in the near future. The ones left standing will thrive. Don’t discount the Chinese firms such as DeepSeek, Baidu, Alibba, Moonshot, etc. I have bought some ETFs that have some holdings in Chinese AI and robotics. That is subject to some political risk. Trump is soft-pedaling on China despite its being a lifeline for Iran. But he has displayed few qualms about dealing with embedded contradictions, as in coddling crypto operators who have facilitated money laundering and terrorist financing, as long as he perceives some benefit to his interests. I expect the Chinese to end up better off because they don’t allow blatant scams to rip people off. America on the other hand has decided that customers big and small should have no protections at all from people selling snake oil. I don’t see that working out well. Trump’s destruction of the economy is just a small part of his evil. This is one of the top ten worst human beings of all time Top ten… I’ll have to think about that. There’s some stiff competition when you say “of all time”. Although, I’m having difficulty coming to with 10 names that best him. Of course we don’t know how many were raped and tortured at the various Epstein estates. That’s exactly what GDPNOW does. A fifth grader could do a better job than them. Forecasts follow the same patterns as when Biden had the office Perhaps he retained the same team of Civil Servants