Third-Quarter GDP Forecasts: GDPNow 2.5%, Nowcast 1.5%
The volatility of GDPNow vs Nowcast is once again on display in recent weeks. Whereas Nowcast barely moves week to week, a chart of GDPNow shows significantly more volatility.
GDPNow forecast: 2.5 percent — October 6, 2017
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The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2017 is 2.5 percent on October 6, down from 2.8 percent on October 5. The forecasts of third-quarter real consumer spending growth and third-quarter real private fixed investment growth declined from 2.5 percent and 1.8 percent, respectively, to 2.2 percent and 0.9 percent, respectively, after this morning’s employment report from the U.S. Bureau of Labor Statistics. The model’s estimate of the dynamic factor for September—normalized to have mean 0 and standard deviation 1 and used to forecast the yet-to-be released monthly GDP source data—fell from 1.53 to 0.18 after the report.
Nowcast forecast: 1.5 percent — October 6, 2017
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Week Ending October 6, 2017: Highlights
- The New York Fed Staff Nowcast stands at 1.5% for 2017:Q3 and 2.5% for 2017:Q4.
- News from this week’s data releases left the nowcast for Q3 broadly unchanged and increased the nowcast for Q4 by 0.5 percentage point.
- Positive surprises from the ISM surveys outweighed negative surprises from employment data.
The charts show a huge reaction to the hurricane on Nowcast but GDPNow had been generally sinking since its initial forecast for the quarter.
Then, in response to construction, autos, and ISM GDPNow jumped far more than Nowcast.
Once again there is a full percentage point gap between the estimates. Mid-week the gap was about 1.3 percentage points.
Hurricane impacts, especially change in private inventories (CIPI) destruction due to flooding on top of wildly changing construction reports makes GDP estimates for third quarter very difficult.
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Sadly, as people can see from the graphs, the forecast and real trend is downwards, not upwards. I suppose that's good for those watching the Federal Reserve hoping they won't raise rates or cut QE too much or too fast. And sadly, that's what the market and people have been programmed to watch, not the fundamental market indicators or any capitalistic indicators since they have been hijacked so long by Federal Reserve manipulation. It will be a big shock when this formula stops working.
When do you expect the formula to stop working?
It's not a market or capitalist decision. It will stop working when the Federal Reserve ends it willingly (not likely) or are forced to raise rates because of inflation, political forces, or the most likely (they see a downturn coming and need a cushion when it hits). That's why it's a planned economy. There is no rational way to predict it besides track the Federal Reserve. Thus businesses are hesitant to do too much given they can be bitten anytime. This will not happen for at least this year and probably early next year.
Thanks as always for the excellent insight.