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by Mish

The Atlanta Fed GDPNow Model says 2.5%.

Latest forecast: 2.5 percent — May 17, 2016

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2016 is 2.5 percent on May 17, down from 2.8 percent on May 13. The second-quarter forecast for real residential investment growth declined from 5.3 to 2.5 percent after this morning’s housing starts release from the U.S. Census Bureau, the forecast for real consumer spending growth ticked down from 3.7 percent to 3.6 percent after this morning’s Consumer Price Index release from the U.S. Bureau of Labor Statistics, and the forecast for the contribution of inventory investment to second-quarter growth declined from -0.24 percentage points to -0.39 percentage points after this morning’s industrial production release from the Federal Reserve. The latter decline was concentrated in motor vehicle and parts dealers’ inventories.

New York Fed Nowcast

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  • The FRBNY Staff Nowcast for GDP growth in 2016:Q2 is 1.7%, half a percentage point higher than last week.
  • Positive news came from manufacturing and housing data and were only slightly offset by negative news from survey data.

Nowcast Detail

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GDPNow Detail

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Nowcast vs. GDPNow

Nowcast takes into consideration things GDPNow doesn’t such as JOLTS job openings, permits, and regional manufacturing surveys.

Is that valid?

Job openings can go unfilled for months or years, assuming the openings are even real. Permits are a measure of future optimism. The only activity related to permits I can think of is the cost of the permit itself.

The regional manufacturing surveys are problematic because they are diffusion indexes, not hard data. I suspect the New York Fed uses the surveys as an indication of future industrial production. That might be valid, if one could measure things properly.

The regional manufacturing weights are tiny. The Empire State weight is 0.008 and the Philly Fed weight 0.006. Nonetheless, the Empire State report knocked off 0.143 percentage points from GDP because the New York Fed’s estimate miss was huge.

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Industrial Production Differences Stand Out

Industrial production and capacity utilization differences stand out.

On Tuesday, GDPNow  stated “the forecast for the contribution of inventory investment to second-quarter growth declined from -0.24 percentage points to -0.39 percentage points after this morning’s industrial production release from the Federal Reserve. The latter decline was concentrated in motor vehicle and parts dealers’ inventories.”

That’s a decline of 0.15 percentage points.

The above charts show the New York Fed Nowcast model added 0.203 percentage points for industrial production and another 0.228 percentage point for capacity utilization.

One subtracts, the other adds following the same data report.

Adding seems intuitively correct with industrial production up 0.7% on the month, However, last month’s industrial production was revised from -0.6 to -0.9% so the jump was not as big as it looked.

Bloomberg Econoday reported “Vehicles, despite mostly weak sales this year, remain a central plus, up 1.3 percent in the month for a year-on-year gain of 4.3 percent which easily tops other readings in the report.

That’s quite a different point of view compared to the GDPNow statement.

Why the Huge Differences?

I don’t know, but the deeper I dig, the more the differences stand out. I frequently find GDPNow going the opposite direction as one might expect from the data.

I have not followed the New York Fed Nowcast model close enough to offer an opinion.

I will see if I can get the Atlanta Fed and the New York Fed to comment on what I wrote above.

Confusion

The Atlanta Fed and New York Fed staffs will likely not be able to comment except on their own individual models, but perhaps the answers will help straighten some things out.

If you are confused, you are not the only one. And if you are not confused, you probably should be, unless you are not paying attention at all.

Mike “Mish” Shedlock