The GDPNow model forecast for 1st-quarter GDP is -0.3% as of April 16. The NY Fed Nowcast is -0.4%.
GDPNow vs Nowcast Evolution
Super Optimistic
Compared to the Blue Chip forecast these models look ridiculously optimistic.
The GDPNow website offered this tidbit.
There are no subjective adjustments made to GDPNow—the estimate is based solely on the mathematical results of the model.
In particular, it does not capture the impact of COVID-19 beyond its impact on GDP source data and relevant economic reports that have already been released. It does not anticipate the impact of COVID-19 on forthcoming economic reports beyond the standard internal dynamics of the model.
Stranger things have happened but I pinged Pat Higgins specifically about unemployment claims as I thought that may be the source of the error.
Here is the response from Higgins who is always generous with his time.
Hi Mish,
The model does use initial unemployment insurance claims among the 126 series used to estimate the monthly factor used to forecast yet-to-be released data.
However, the spike in March claims is identified by the code as an outlier and replaced with a more typical value.
Our policy is to not change the code in the middle of a quarter, so we can’t change how the code handles outliers until we begin forecasting the second quarter.
Whether or not March claims is treated by the code as an outlier does not have an outsize impact on the first quarter forecast, in part because it is only 1 of 126 series and because much of the first-quarter data has been released.
I can’t really say how a spike in unemployment would effect the forecast because of the FOMC blackout which ends a week from Friday. I can follow up after that however.
Best regards,
Pat
Mish
Restaurants are pretty much dead. Lots of smaller businesses too. And not because there’s no business. Just look at this: link to sfgate.com
“Chau, who along with co-founder Bin Chen is still not taking a salary, said at least one employee said they weren’t returning because unemployment benefits were too good to give up.”
This morning CNBC reported that 4.43 million people filed new claims for unemployment in the last week so of course the Dow opens higher. It is interesting to note that this read is nearly identical to the estimate, which was 4.3 million.
They also said that this will equate to an unemployment rate of 21.7% for the month of April when the unemployment rate gets reported in May. It will only take one more week of multimillion claims levels to match or exceed the peak unemployment rate of the great depression which was 25%. I am not going to Google that fact, so if you disagree with it please refer criticism to CNBC which reported that.
Even if we take the stupid/suicidal move of reopening the economy in the first week or two of May quite a few of those jobs are not going to return. This will leave a lingering high unemployment rate that will evolve into a structural problem lasting years.
The market is STILL expecting a V shape (one “expert” called it a Nike swoosh) as of this morning.
Per “experts” a boat load of magical spirits will be unleashed as soon as economy opened up for business. Won’t happen.
Read multiple articles earlier on concerns 1) restaurants and such want insurance to pay out for closure. Push back from insurance. Both want US Treasury to bail out. 2) Many folks with mortgages are being given forbearance, but with balloon payment. Good luck with that. 3) Employers want blanket immunity from employees / customers contracting virus at work site.
Just a few of the issues that need clarity before any semblance of old economy returns.
Like I keep saying TB, they cannot even get hand sanitizers or toilet paper on the store shelves more than 60 days in and they are talking about sending everyone back to work? Sounds like a recipe for a socialist takeover.
Looks like it’s starting to work:
Fed will print between $7-800 Trillion this year for (if we’re lucky)1% GDP ,2009 they printed $100 trillion and change for…….1% GDP…ain’t inflation a bitch!
‘Open the Economy’ Is the New ‘White Lives Matter’ link to theroot.com
A view that would be taken as counter
I suggest everyone do a little reading about the author … “legendary” alright, but for some of the wrong reasons … Martin Armstrong spent 11 years in prison for cheating investors out of $700 million and hiding $15 million in assets from regulators.
Might he be more concerned about his own money than anything else?
Deflation is primarily about destruction of credit, not prices.
But if home prices were put in the CPI as they should be, price deflation would be huge.
Regardless, I expect a degree of price deflation anyway.
From what Ive read, “deflation” is everywhere and always all about the destruction of credit — the default of loans — the sudden disappearance of what used to have value. What else could deflation be? I used to think it was prices going down. Once you get your mind around it as destruction of non-cash wealth, it seems pretty simple.
” “deflation” is everywhere and always all about the destruction of credit”
Not always and everywhere. Only when credit is far and away the largest component of the ability to demand.
If you have a cash only economy, you can still have deflation, as long as you confiscate and burn cash.
But today, outstanding credit is at east an order of magnitude greater than base money/cash. So in practice, credit is what determines inflation vs deflation.
I think it is more complex.
You can have deflation from surplus of production that is caused by poor allocation of credit or by poor planning, by competition or increase in productivity, by population decrease, by failure of credit due to the above poor allocation, by decrease in money supply, by change in consumer sentiment, by less production that affects consumer wages, by taxation and misallocation of those taxes, and so on. Even price inflation can be deflationary in real terms, or vice versa.
I think when we talk of deflation, broadly it means a reduction of voluntary economic activity, no matter what reasons are behind that. It does not even have to be seen as negative, sometimes people just work less out of choice for example.
The balance between production and demand will set prices, less production and less demand at the same time is more neutral, depending on money supply. With shifts like we have now it will be a mixture, especially in real terms. For those queueing for food it is too expensive now even if prices were cheaper, for example.
It is all relative, except the actual slowdown in real economic activity, and therefore its reward of production and service from it.
You all make good points. However, I would argue credit is not being destroyed, but instead being moved to the National Debt. Look at the housing bailout for the big banks in 2008, Congress passed a $700 billion bill. This helped stabilize banks and housing prices. Get back to me when the budget is balanced, then we will see the credit destruction. The Republicans railed on President Obama for the high deficits his initial years. The deficits were trending in the correct direction and then President Trump passed his tax cut without cutting spending.
Hence that is why I stay invested in blue-chip companies in the stock market.
This is a very good argument. In the end it’s still “who’s gonna call the Fed’s bluff”?
“Deflation is primarily about destruction of credit, not prices.”
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No argument.
I point to cpi mainly as avenue to show others “see?”.
You are spot-on focusing on credit rather than money supply.
OT, McConnell favors bankruptcy for states.
link to yahoo.com
“Our policy is to not change the code in the middle of a quarter, so we can’t change how the code handles outliers until we begin forecasting the second quarter”.
Translation: We don’t want to panic people with skin in the game.
No not at all.
Higgins is a straight shooter.
Oh, it ain’t him, its the “system”.
The economy must not be so bad. I mean look at Snapchat. There seems to be no impact on ads. People must continue to spend. Tons of businesses out there like Expedia, AirBnb, etc are cutting marketing, but somehow it’s not translating into a decline in online ads revenue.
Everything has to be hunky dory right?
“it’s not translating into a decline in online ads revenue.”
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Too early to tell.
Much business revolves around setting up leases / contracts for stream of revenue.
Watch what happens on renewals.
They seem pretty positive about the future too.
I am sure YouTube will have a great quarter, because people are staying home and watching ads.
“They seem pretty positive about the future too.”
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Cite?
Again, the proof in the pudding will be rollover / renewal.
It’s only been a few weeks
The Dangerous Rise of COVID-19 Influencers and Armchair Epidemiologists
This is all backward looking. The market is extremely forward looking at this point. The market is forcing itself into a V shaped recovery irrespective of what happens in the real economy which will probably be more like a check-mark shaped recovery.
Silliness.
The market does not look forward.
If it does, please explain the Nov 2007 top (recession next month), or the March 2009 bottom (which suggested more bad to come).
Repeat after me: The market is a coincident indicator of sentiment towards the market.
That’s too long ago Mish. Just think of last month. One day it’s hunky dory, the next few days Vix was up to 60.
But yeah, so far you are still wrong about deflation. Treasury yield down? Well I can say that’s also a coincident indicator of sentiment towards the market 😉
“But yeah, so far you are still wrong about deflation.”
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Mish will be proven right.
The game just getting started. CPI down 0.4% for March.
Sigh – this is about credit, not prices.
But if home prices were put in the CPI as they should be, price deflation would be huge.
I expect a degree of price deflation regardless.
So yes, I will be proven correct.
That was in the pre-bailout era Mish. The market wont be allowed to go back to 666 on the the S&P. Money is simply created electronically in bond markets by the Fed and it drives money elsewhere. Bailouts got institutionalized after TARP.
I think it is easy to see now that we have the benefit of time that prior to 2008 were the last era of no bailouts by the Fed, Treasury and government (all basically one organization). These organizations think they didn’t go far enough in 2009 and would have certainly used the tools that are institutionalized now in 2007 had they been able to. That wasn’t their charter in 2007. Everything changed in 2008 and 2009. The Fed has been buying bonds of some sort since then and only stopped for brief period in 2017 and 2018 and then started again. The Fed steps into the treasury auction as the buyer of last resort when someone like China or some other country doesn’t buy as much as they expected. The bond buying program will never end and TARP institutionalized the bailouts permanently for the banking system. So comparing 2007 to now is like comparing an alternate solar system to ours. Things are so different now that 2007 doesn’t even matter anymore. As long as dollars are accepted by foreign governments for commodities like oil, then the Fed, Treasury and US government will remain firmly in place. China co-opted the WHO this time and they are trying to do the same at IMF and World Bank. The US, EU, Japan and other nations will increasingly question China as a destabilizing force for the global economy. Even emerging markets trust China less each day after this crisis. We can ask all the questions we want about the market but in the grand scheme of things unless the system is understood on the scale of governments and what they are doing to control the system, we miss the real story.
“The market is extremely forward looking at this point.”
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Really?
The market does not have a clue on the tsunami of credit default on tap.
I agree. But more credit will be created as it is getting destroyed. Defaults can happen but the Fed is happy to create more credit to start a new credit cycle.
Does anyone think the models/algorithms that do a large, if not majority, portion of stock trading these days were any more inclusive of new situations like the COVID-19 pandemic than the GDPNow model was? All they seem to be responding to these days is Fed printing … which admittedly is a major factor.
” Fed printing … which admittedly is a major factor.”
It’s the only factor. Perhaps more than only.
By now, the stock “market” is at least as likely to correlate negatively with real growth, as positively.
The stock “market”, like all “asset” “markets”, are mere redistribution engines by now. No different from any other welfare program.
Just the tiniest bit more obfuscated, in order to fool rank idiots into believing those who receive their welfare checks via one of those welfare programs, are somehow more “deserving,” or have in some way at all “earned” it, compared with those who receive their welfare checks at more traditional welfare offices.
They’re not, and they haven’t. And that is not at all an exaggeration.
“It’s the only factor.”
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A contributing factor, yes, but not only. Parity funds / 401Ks / etc. are mostly on auto pilot investing in equities.
” Parity funds / 401Ks / etc. are mostly on auto pilot investing in equities.”
And pretty much none of them would even exist, sans The Fed’s implicit promise to debase all more efficient forms of savings. Solely in order to prop up a leeching class of dilettantes collecting rent in exchange for pretending to be above average an picking random numbers.
How big was the 401K rackets prior to the Fed’s founding, again…?
High frequency trading (HFT) programs are tracking algorithms. As long the sample rate of price is more than 2x the frequency of the smallest active frequency of interest, the algorithm will be able to handle the changes. HFT’s sample prices 1000x a second. That’s more than fast enough to deal with an unforeseen macro change.
Don’t you mean “As long the sample rate of price is more than 2x the frequency of the HIGHEST active frequency of interest”?
I think you “switched units” in your explanation …
(frequency = 1/time interval … number of complete “waves” passing a point within a given time interval))
See “Nyquist Theorem” in Wikipedia or elsewhere …
Realistically “reopen” an economy that’s been dead and rotting away since 2009 will just invite a tsuname of phony lawsuit scams,everybody will be sueing every establishment claiming injury or infection,hell wanna make the big bucks,go class action…..ca ching!
“Compared to the Blue Chip forecast these models look ridiculously optimistic.”
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I’ll take the under.
Frankly, I suspect things much worse than they are expecting (and certainly from the “experts” on tv). Just now they are beginning to grasp situation as tax revenues are being reported. And I don’t expect tax revenues to rebound anytime soon … more likely further droppage.
Real indicators
In the US earlier ?
South Africa, lockdown pencilled in to end 30 April, but they just stationed over 70 000 more troops in public till June 26.
In Spain the government is talking of a new social reality, where most people work from home etc.
The UN is talking famines.
I don’t know, maybe the US is able to restart the domestic economy somehow in spite of what is going on elsewhere.
Agreed, Tony. Other than a “cure” with at least a modicum of effectiveness, I see nothing to apply brakes to what certainly appears a downward spiral. Wait until the April unemployment numbers. At some point the curtain will be pulled back, the Fed will be exposed as a financial Wizard of Oz and things could get ugly. Mike
I once bought a model of the USS Enterprise Star Trek ship. It ended up looking like a HeeHaw wagon..