News Note: What will Q3 GDP Look Like?

The Empire State index took a big dive as reported in this article from Marketwatch. We continue to get conflicting economic reports with some reports seeming to reflect improvement and others not so much. The Atlanta Fed puts out a GDP forecast called GDP Now that has actually been pretty good compared to a lot of other forecasts. You can follow that here.

Right now the GDP Now forecast looks pretty weak for the third quarter (0.7 per cent). If that number turns out to be accurate, it would mean GDP for the first nine months of 2015 would be pretty weak. Recall that the first quarter was virtually zero. 

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The Marketwatch article has this to say:

"A reading of New York-area manufacturing conditions fell swiftly and brutally in August, one that could make the likelihood of an interest-rate hike next month — or even this year — more remote.

The Empire State general business conditions index nose-dived to a reading of negative 14.9, from positive 3.9 in July, marking the worst level since April 2009, the New York Fed said. The index, on a scale where any positive number indicates improving conditions, was far worse than the positive 4.5 forecast in a MarketWatch-compiled economist poll."

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If we combine this with the troubled market in China (and two unexpected currency devaluations there), one has to wonder how the Fed could actually think about trying to raise interest rates. The latest housing news is mixed at best. I would think the very last thing the Fed would want to do at this point is take an action that might hinder the housing market, the auto market, and other consumer markets that are interest rate sensitive.

Another thing to keep in mind is that next year is a major election year in the US. Historically the Fed has been very reluctant to take any kind of action that might slow down the economy in an election year. What I suspect all this means is that IF the Fed raises rates at all before the 2016 elections, it will be only 25 or 50 basis points spread out over many months. But Jim Rickards may end up being right on his prediction of no interest rate increase in 2015.