The No-Landing Scenario

While we are all debating whether a soft or hard landing is coming in 2023, the economy continued to fly higher during H2-2022. After falling slightly during H1-2022, real GDP growth was revised up to 3.2% during Q3-2022 from 2.9%. This morning, the Atlanta Fed's GDPNow tracking model revised the Q4-2022 estimate from 2.7% to 3.7%. Wow, here we go into the wild blue yonder!

Following today's release of November's personal income report, the GDPNow model's estimate of real personal consumption expenditures (PCE) rose from 3.4% to 3.6%. The estimate for real gross private domestic investment growth jumped from -0.2% to 3.8%! The bad news is that was largely attributable to a big increase in (mostly unintended) inventory investment, which should weigh on Q1-2023 growth (table). On the other hand, inventory clearance sales should put lots of downward pressure on goods prices.