GDPNow predicts a sharp increase of 4.3% in US second-quarter GDP, Pantheon pours cold water: don't be misled by the "hype"

American economists are increasingly questioning the reliability of the GDPNow model of the Atlanta Federal Reserve. The model predicts a significant acceleration in economic growth in the second quarter, despite having very limited basic data. The GDPNow model has unveiled a "trailer" of 4.3%, but the main actors - the real data for May and June - have not yet appeared on the scene. Independent macroeconomic research company Pantheon Macroeconomics warns not to be misled by the hype, as second quarter growth is likely to be around 1.5%, much lower than the current "high fever" reading of the GDPNow model. Currently, the GDPNow model predicts an annualized growth rate of 4.3% for the US economy in the second quarter, more than double the 2.0% growth rate in the first quarter. However, Pantheon Macroeconomics points out that this forecast is based on "too little data to be credible" and warns that the model heavily relies on statistical extrapolation rather than solid economic data input. The organization states that the latest GDPNow estimate hardly includes any hard data for May or June, and lacks reliable information on volatile trade and inventory subcategories - both of which can significantly change the overall GDP reading. Historically, the model's median prediction error before the official GDP release has been around 1 percentage point, reaching a high of 3.6 percentage points. Pantheon also believes that several subcategory predictions in the model seem overly optimistic. GDPNow currently predicts a 2.9% growth in personal consumption expenditure in the second quarter, while Pantheon predicts a consumption growth closer to 1%, citing the fading support from tax refunds and the drag on household spending from rising gasoline prices. Although inventory and AI-related business investments may support economic activity, Pantheon states that these growth factors are likely to be offset by the weakness in net exports, as both areas are highly import-intensive. The organization claims that the GDPNow model's assumption that trade has a neutral impact on growth "appears inconsistent". Pantheon predicts that as more economic data is released in the coming weeks, the GDPNow forecast will be revised downwards. The organization currently estimates a second quarter growth rate of about 1.5% for the US, and states that they would be surprised if the growth rate exceeds 3%. Pantheon warns that any growth forecast above 4% should be viewed with caution until two-thirds of the second quarter have passed and a large amount of key data has been released. In the coming weeks, as inflation, non-farm employment, retail sales, and trade data for May are gradually released, GDPNow is likely to be revised downwards.