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Atlanta Fed Cuts Q3 GDP Forecast To A Paltry 1.2%

Earlier today, following the disappointing July personal spending data and yesterday's record surge in inventories as part of the spike in Q2 GDP, we predicted that the Atlanta Fed would cut its already painfully low Q3 GDP forecast of 1.4%.

Atlanta Fed Q3 GDP update due today: should be a drop from 1.4%

— zerohedge (@zerohedge)

Moments ago, it did just that, when the Atlanta Fed GDPNow "nowcast" was revised lower to just a 1.2% annualized growth rate, more than two-thirds below the BEA's first revision of Q2 GDP.

If officially confirmed in two months, this would be the lowest GDP since Q1 2014, and just fractionally higher than the "harsh winter" double-seasonally adjusted GDP print from the first quarter which economists tell swear was due only to harsh weather. So what was the culprit this time: the record hot July?

Here are the reasons:

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2015 is 1.2 percent on August 28, down from 1.4 percent on August 26. The forecast for real GDP growth in the third quarter decreased by 0.2 percentage points following this morning's personal income and outlays report from the U.S. Bureau of Economic Analysis. The slight decline in the model's forecast was primarily due to some weakness in real services consumption for July, which lowered the model's estimate for personal consumption expenditures from 3.1 percent to 2.6 percent for the third quarter.

And while normally this downward would be vehemently opposed by the permabulls, today it comes as a welcome relief as this may be just the catalyst those who are terrified about a market drop  "premature" rate hike will latch on to, crying how it would be foolhardy for the Fed to hike rates in a quarter in which GDP is set to tumble.