Image source: Pixabay

My last update was on August 17. The Nowcast has gone nowhere in an interesting way.

GDPNow data from the Atlanta Fed, chart by Mish.

August 23: New Home Sales Surge in July, What Will that Do for GDP?

New home sales were up 10.6 percent in July, and an amazing 19.8 percent factoring out a big upward revision. What will this do to GDP estimates?

A Big Nothing?

Since completions went nowhere, I am not convinced there is any positive impact from this report, as remarkable as that may seem.

In the spirit of being positive, I will take a stab at +0.05 percentage points (PP) contribution to residential construction in the GDPNow forecast on Monday.

A Big Nothing it Was

The contribution to residential constriction fell 0.04 PP, I suspect due to completions. For those interested in how I arrived at nothing, click on the above link.

There were no further updates until August 30.

PP Contributions to GDP Forecast August 30

• PCE Goods increased from 0.98 PP to 1.23 PP (+0.25 PP)
• PCE Services increased from 1.05 PP to 1.36 PP (+0.31 PP)
• Gross Private Domestic Investment (GPDI) Increased from -0.44 PP to -0.02 PP (+0.44 PP)
• Change in Net Exports fell from +-.04 to -0.39 (-0.35 PP)
• Other minor changes

The BEA Revises Income in May and June Lower, But Spending Higher

On August 30, I reported The BEA Revises Income in May and June Lower, But Spending Higher

With spending unexpectedly higher, the contribution to Personal Consumption Expenditures (PCE) rose a combined 0.56 percentage points.

The change in net exports (surge in import spending) wiped out the increase in GDPI.

PP Contributions to GDP Forecast September 3

• PCE Goods fell from 1.23 PP to 0.95 PP (-0.28 PP)
• PCE Services fell from 1.36 PP to1.25 PP (-0.11 PP)
• GDPI fell from -0.02 to -0.11 (-0.09 PP)
• Government Expenditures fell from 0.34 to 0.30 (-0.04)
• Net Exports rose from -0.39 to -0.35 (+0.04)

The ISM and construction spending reports on September 3 took away the entire bounce on August 30.

September 30: ISM Index Little Slightly Better But New Orders and Production Contracting Faster

September 30: Construction Spending Growth Slows in May, Stops in June, Negative in July

Note that the overall ISM number rose. I did not verify with GDPNow creator Pat Higgins but I suspect GDPNow took a hit because the ISM production index fell from 45.9 to 44.8.

New orders (which were terrible) will drive future GDP. Current production will drive current GDP.

A similar thing happened with the surge in new home sales.

Slight Bounce Today

The 0.1 PP bounce today was due to the GPDI contribution rising from a net -0.11 PP to +0.01 PP (+0.12 PP) related to the Census Bureau’s durable goods and international trade (trade deficit) reports.

A Reader Question on GDPNow, How Does the Model Work?

Since August 17, the model nowcast rose on good data and fell on bad data.

That is not always the case. Frequently, the GDPNow nowcast increases on bad data and drops on good data.

This happens because the nowcast changes not on the data itself but rather what the model expected vs the incoming data.

For discussion, please see A Reader Question on GDPNow, How Does the Model Work?

When I make a GDPNow estimate, it is always vs my expectation of what the model predicts, not what the data is.

I did not post an estimate for the latest IMS reaction because GDPNow was out before I did my ISM report.

However, my mental estimate (before I looked at GDPNow) was what happened. That’s because I did not think the model expected a decline in the production portion of ISM.

Looking at the headline number, one might have thought the impact would be benign.

It’s not always clear how the model will react to data.

To estimate the GDPNow reaction, one needs to make an educated guess as to what the model expects rather than looking at just the data. It’s a totally different mindset.

Looking ahead, I expect weak data and declining GDPNow nowcasts.

More By This Author: