Economic Boom Thesis Nothing More Than a Hurricane-Related Mirage

Economic Boom Thesis Nothing More Than a Hurricane-Related Mirage

On Friday, both GDPNow and Nowcast updated their models. The former estimates 1st-qtr GDP at 3.2%, the latter at 3.1%.
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On Friday, both GDPNow and Nowcast updated their models. The former estimates 1st-qtr GDP at 3.2%, the latter at 3.1%.

It's been a wild ride for the GDPNow Model, not so for Nowcast.

GDPNow Forecast: 3.2 Percent - February 16, 2018

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2018 is 3.2 percent on February 16, unchanged from February 14. The nowcast of first-quarter real residential investment growth fell from -0.6 percent to -1.7 percent on February 15 after the industrial production release from the Federal Reserve Board of Governors and the Producer Price Index release from the U.S. Bureau of Labor Statistics. The nowcast increased to 0.6 percent after this morning's new residential construction release from the U.S. Census Bureau.

Nowcast Forecast: 3.1 Percent - February 16, 2018

  • The New York Fed Staff Nowcast for 2018:Q1 stands at 3.1%.
  • News from this week's data releases decreased the nowcast by 0.2 percentage point.
  • Positive surprises from housing starts and building permits only partly offset negative surprises from retail sales, industrial production, and capacity utilization.
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GDPNow Evolution

Let's switch to a portion of GDPNow's downloadable spreadsheet for further details.

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Change in Private Inventories

Unlike Nowcast, GDPNow estimates the Change in Private Inventories (CIPI).

Overall, GDP is at 3.2%, down from 5.4% on February 1. GDPNow's real final sales estimate stands at 2.0%, down from 4.1% on February 1.

Final sales is the true bottom line measure, because additions and subtractions to inventory net out over time.

If we get another bad retail sales report, as I suspect, that 2% estimate will shrink even further.

Boom Was a Mirage

The hype we have seen about the strengthening economy now appears to be nothing but a hurricane-related mirage, something that I suggested would happen months ago.

For a look at why the GDPNow model went haywire, please see Pat Higgins Explains the Wild 5.4% GDPNow Forecast Made February 1.

Also consider Retail Sales Dive, Negative Revisions Too: GDP Impact 4th and 1st Qtr.

The problem with models is that they do not think.

Mike "Mish" Shedlock

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GDPNow Forecast Rises, Nowcast Dips on Same Economic Data

On Friday, the GDPNow and Nowcast models updated their 4th quarter GDP forecasts. One model rose, the other fell.

GDPNow vs Nowcast: When Will Hurricane Adjustments Take Place?

On Friday, GDPNow and the FRBNY Nowcast both posted third-quarter GDP estimates. GDPNow stands at 3.0%.

Nowcast GDP Estimate 1 Percentage Point Higher Than GDPNow

Following Friday's jobs report the GDPNow forecast slid from 3.2% to 2.9%.

Formulas Don’t Think: Investigating Weather-Related GDP

The New York Fed updated its GDP Nowcast forecast for 4th quarter 2016 and 1st quarter 2017 last Friday.

CPI Up Less Than Expected Despite Hurricane-Related Energy Jump

The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.5 percent in September on a seasonally adjusted basis. Over the last 12 months, the all items index rose 2.2 percent. The gasoline index increased 13.1 percent accounting for about three-fourths of the increase.

GDPNow Silliness

Both GDPNow and the FRBNY Nowcast models will have updates on Friday. Meanwhile, it’s hard not to comment on recent forecasts from GDPNow on second quarter DGP.

Weaker Than Expected GDP: Mixed Bag or Worse?

Fourth Quarter real GDP came in at 2.6%. Nowcast estimated 3.9%, GDPNow 3.4%. Let's dive into the report.

GDPNow Forecast Up Huge on Positive Economic Data

The Atlanta Fed GDPNow Model forecast for 4th-Quarter GDP jumped strongly today on economic reports since November 19.

GDPNow Forecast Unchanged at 1.8% Despite Dismal Economic Data

GDPNow and Nowcast forecasts have converged at just under 2.0% despite dismal economic data, especially manufacturing.