Economic Boom Thesis Nothing More Than a Hurricane-Related Mirage
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.
GDPNow Evolution
Let's switch to a portion of GDPNow's downloadable spreadsheet for further details.
Change in Private Inventories
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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