GDPNow and Nowcast Converging (Opposite Direction Movement on Same Data)

IMG Auteur
Published : June 10th, 2017
646 words - Reading time : 1 - 2 minutes
( 0 vote, 0/5 )
Print article
  Article Comments Comment this article Rating All Articles  
0
Send
0
comment
Our Newsletter...
Category : Opinions and Analysis

The Atlanta Fed GDPNow Model and the New York Fed Nowcast models head towards convergence. This past week the models again moved in opposite directions on the same economic data.

Nowcast Detail

From a week ago, on the same data, Nowcast rose 0.1 percentage point. To be more precise, Nowcast rose from 2.17 to 2.25.

GDPNow Detail

In the same week, GDPNow fell from 3.4 to 3.0. The net result was a spread contraction of 0.5 percentage points.

Volatility

Since GDPNow posts its results more frequently, one should expect more GDPNow volatility, but not like we have seen.

Starting Points

GDPNow got out of the gate with what I believe to be a ridiculous number. On May 1, GDPNow posted 4.3% and much of that was due to revised construction spending.

I commented on that on May 1, in Investigating Weather-Related Effects on Construction Spending.

The second quarter is not off to a good start. However, the GDP models may go haywire once again by not factoring in weather-related phenomenon

On May 2, I commented Tracking GDPNow Forecasts vs. Reality: What About that Initial 2nd Quarter Estimate?

On May 1, the GDPNow Model came up with an initial forecast of 4.3% for second quarter GDP.

My first reaction was “here we go again”. That was quickly followed by “I’ll take the under, way under” bet.

Let’s take a look at the latest forecast, why I think the model is wrong, and some interesting charts of GDPNow forecasts vs what actually happened.

Since then, hard data has not matched model assumptions and GDPNow has shed 1.3 percentage points off its initial estimate.

Inventories

Consider this snip from today’s GDPNow report.

Latest forecast: 3.0 percent — June 9, 2017

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2017 is 3.0 percent on June 9, down from 3.4 percent on June 2. The forecast for second-quarter real GDP growth fell from 3.4 percent to 3.1 percent on June 5 after the U.S. Census Bureau’s manufacturing report and the incorporation of motor vehicle sales estimates released by the U.S. Bureau of Economic Analysis on the prior business day. The forecast of the contribution of inventory investment to second-quarter growth declined from 0.87 percentage points to 0.77 percentage points after this morning’s wholesale trade report from the Census Bureau.

Inventory Growth?

Despite today’s poor trade numbers, sales and inventories alike, the GDPNow model still expects inventories will add 0.77 percentage points to second quarter GDP.

Why?

I have no idea why, but that is what the model expects. If inventories decline again next month, or even if they are flat, the GDPNow model forecast could easily sink nearly a full percentage point.

For a look at today’s inventory report, please see Wholesale Trade Report Worse Than Expected: 2nd Quarter Recovery Thesis Nearly Dead.

Moreover, if the Nowcast model anticipates inventory flatness, the models could easily converge a month from now, if not before.

Since GDPNow requires much better numbers than Nowcast from economic reports, if the economic numbers for May disappoint again, the reaction in GDPNow will be far more negative to the downside. If numbers strengthen, the reverse could happen.

Word of Thanks

Once again, I wish to reiterate that I am grateful for the models. I have learned much from them, and I hope my analysis factors into improving them.

The main flaw I see is taking one strong report at the beginning of a quarter and projecting it forward as if it will continue. Last quarter Nowcast appeared to do that, this quarter GDPNow.

Secondly, there is an overreliance on soft data, especially ISM numbers. Markit’s PMI has been much closer to the mark than ISM.

Right now, I believe both models are too high, especially GDPNow. Economic reports for April have been generally miserable.

Mike “Mish” Shedlock

Source : mishtalk.com
Data and Statistics for these countries : Georgia | All
Gold and Silver Prices for these countries : Georgia | All
<< Previous article
Rate : Average note :0 (0 vote)
>> Next article
IMG Auteur
Mish 13 abonnés
Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. He writes a global economics blog which has commentary 5-7 times a week. He also writes for the Daily Reckoning, Whiskey & Gunpowder, and has over 80 magazine and book cover credits. Visit http://www.sitkapacific.com
WebsiteSubscribe to his services
Comments closed
Latest comment posted for this article
Be the first to comment
Add your comment
Top articles
World PM Newsflow
ALL
GOLD
SILVER
PGM & DIAMONDS
OIL & GAS
OTHER METALS
Take advantage of rising gold stocks
  • Subscribe to our weekly mining market briefing.
  • Receive our research reports on junior mining companies
    with the strongest potential
  • Free service, your email is safe
  • Limited offer, register now !
Go to website.