Since June 3, GDPNow had four new inputs. Let’s discuss them.
The Atlanta Fed GDPNow nowcast is significantly below the forecast high of 4.2 percent on May 14, but also higher than the June 3 nowcast of 1.8 percent.
What Happened?
The reason for any change is always the same. It’s not the data that matters, rather it’s the data vs the model expectation that matters.
Thus the reports from June 4-6 were better than the model expected. That does not imply the reports were good or bad.
The following table provides a better explanation than generic statements.
I discussed the June 3 plunge in my previous GDPNow analysis. Let’s go June 4-6.
June 4
On June 4, the Monthly Full Report on Manufacturing Durable Goods was better than the model expected. This happened because the GDMNow model overweighted the poor Manufacturing ISM numbers and/or the advance report on durable goods.
Also, auto sales beat the Econoday consensus and may have exceeded the GDPNow expectations.
I did not look at the full durable goods report until today or I would have anticipated some of this this bounce.
June 5
The ISM nonmanufacturing report was better than the model forecast. However this only added 0.1 percentage point to the GDPNow model.
June 6
Heading into today’s GDPNow update, the model overweighed the advance trade data. The full international trade report (goods plus services) was out today and was not as bad as one might have expected from the advance data.
I expected this part of the bounce result looking at the trade data before I looked up the actual impact on GDPNow.
The net impact of the full trade report was a hike of 0.2 percentage points in the GDPNow nowcast.
Understanding the Model
Having followed GDPNow for years, I can now usually make a reasonable advance guess as to how the model will react to the data.
Still, it’s not always that easy. The key is not how good or bad the data is, but rather anticipating what the model expects. Often I just don’t know.
My May 30 Comment
I discussed the trade deficit dip on June 1 in Soaring US Trade Deficit Smacks the Atlanta Fed GDPNow Forecast
We can see now that the model overreacted to the Advance Trade Data.
ISM Manufacturing New Orders and Backlogs in Steep Contraction
On June 3, I noted ISM Manufacturing New Orders and Backlogs in Steep Contraction
The model overreacted to the manufacturing ISM report as well.
Current Numbers
- GDPNow Base Forecast: 2.6 percent
- GDPNow Rea Final Sales 2.0 percent
The base forecast is essentially irrelevant although that is what most follow. including the media.
Real Final Sales is the bottom line estimate of the economy. The rest is an inventory adjustment that nets to zero over time.
CIPI (Change in Private Inventories) currently adds 0.53 percentage points to the GDPNow nowcast.
All so exciting. My best way of measuring the economy is going out and travelling. As I’ve always said, the economy doesn’t look slow to me. If there were truly major effects on people’s lives, they would stop spending. That just isn’t happening.
CFNAI-MA3 is at stall speed but I expect it bounce upward b/c of summer spending.
Best way? The more bifurcated the economy becomes, the worse of an indicator that will tend to be. Not every strata of the economy travels, and the rich tend to benefit from inflationary times as the rest suffer. I have my own good metric. When I drive at night, I look for people driving around with busted-out headlamps. In good times, those will get fixed immediately. Now, there’s a lot of them out there. The last time I saw as many one-eyed Joes on the road was mid 2019.
I’m not a high end traveler. I drive too. The economy will never be perfect. But we know it’s nothing like 2009 when the bottom fell out.
From oilprice.com:
A surge in demand for imports from Asia is straining global shipping capacity and driving up costs for U.S. importers.
Disruptions at major ports, such as Los Angeles-Long Beach, are exacerbating the situation, with further increases in imports expected in the coming months.
Importers are advised to secure fixed rates or require suppliers to agree to fixed U.S. port-delivered prices to mitigate the impact of rising costs.
Its random crap.
If you fling poop against a wall, sometimes it falls to the left and sometimes it falls to the right. You have to be a bit brain damaged to obsess over nonsense.
Or maybe Mish is a gambler? He likes to wager whether the pigeon on the left will take flight before the pigeon on the right? And he is crazy enough to think he can forecast which pigeon is which if he does a complex enough regression analysis.
Its just random crap, based on a poorly run survey conducted by bureaucrats who are too dumb to get real jobs.
Since so much of what Mish presents on this blog is this “random crap”, why are you still here?
You can fling your own poo against the wall PapaDave. It will work just as well.
Mental patients like yourself are known to play with their own feces.
Hmmm. I wonder which of us is crazier? Perhaps it’s the person who keeps coming here to read analysis on statistics he doesn’t believe.
Mish, I appreciate the time and effort you put into your analysis. It’s one of the main reasons I very much like your blog.
Regarding all the stats you cover, I tend to look at the longer term trends rather than the individual numbers, as they are often subject to revision later as more data comes in.
One thing I find puzzling is the large number of people in this comment section who believe that all these stats are fabrications and lies. If they believe that, I wonder why they keep reading your blog, since it often centers around these stats.
Based on the longer term trends, it would seem to me that we are in for more slow growth, and moderate inflation. Hard to see a recession anytime soon, but the future is very hard to predict, isn’t it?
Anyway, keep up the good work. And thanks again for the great blog!
I think the frustration by some (not me) is he has been wrong in recession calls. There are a lot of people here who want to see the government overthrown and have anarchy. They somehow think that will make everything ok.
I’ll say what I’ve said before. Since the 2008/09 financial crisis, a lot of stuff has been institutionalized by the Fed and Treasury and doesn’t get taken into account for preventing recessions. Since the financial crisis the Fed is scared that it can happen again and is now in constant recession prevention mode even at the expense of inflation.
I actually stopped following what is otherwise good analysis by Mish and others because the numbers just don’t tell the whole story anymore the way they use to. The reason is the invisible hand of the Fed is in every part of our economy now. They have provided bank bailouts, commercial real estate bailouts, corporate bond bailouts, junk bond bailouts and bailouts of nearly every kind via balance sheet “operations”.
I think some commenters here want another crisis and are upset there isn’t one. There won’t be because there is simply too much money flowing around. We will get lower inflation (eventually) but I see no signs that Powell is going to cave anytime soon.
Preventing recession, or just offloading the unavoidable deleterious effects to the bottom half, so that on average, all the headline numbers still look ok?
There will always be have mores and lesses. The glass always looks half empty ir half full based on how you are doing.
Yes. Mish has been wrong in his recession calls. I don’t care. Because I make my own calls on the economy; some of which are based on his analysis.
Yes, there are a lot of dumb f*cks here who are anarchists. They are a waste of time. I miss the IGNORE button.
Yes, there is more to the economy than what Mish’s analysis portrays. But he does a lot of work that I don’t have time to do. That’s why I come back when I have the time.
“One thing I find puzzling is the large number of people in this comment section who believe that all these stats are fabrications and lies.”
It’s likely because correlation between the “stats” and observable reality, never rises above random. And never will. If for no other reason, because it can’t.
Most people, for one; honestly unfathomable; reason or another, seem unable to grasp that the reason for the lack of correlation, is simply that economics never was, never even can be, any form of empirical “science.”
Instead of it being simple deductive logic, and nothing more. Entirely timeless. Wholly independent of any “current” environment. No different from math in that regard. Hence why, despite being dead for half a century, von Mises still “knows” more about the current economics of the US, than the Nobel Price winning quack Krugman. And why von Mises even knows more about the economics of some planet in the Andromeda, than anyone who ever tries “measuring” it ever will.
Failing to grasp that; many instead insists the disconnect they can see with their own eyes, is instead due to some sinister someone “lying” and “fabricating.” Which, I’m sure, someone very well may be, or at least be attempting to. But fundamentally, that doesn’t really matter: There is no way to “measure” “correctly” no matter what. The entire exercise is just folly from the getgo.
The only thing one can say with any certainty about anything in economics; are that which can be logically deduced from first principles. Anything else, is just arbitrary opinion. Opinions which, unsurprisingly, every regime connected hack can be relied on to insist are somehow “more” “correct” than others, in direct proportion to how clearly they favor the regime and their favored quacks. Which is no different from any other variation of the ever-so-popular-among-the-less-than-bright “My Dear Leader is good blah, blah. Only the other Dear Leaders are baaad. Because The Man on TeeVee says so!!”
GDPNOW is crap. Every reading in the last quarter was way higher than the final number. Even worse, people quote GDPNOW if it fits their narrative.
I must be missing something. What actionable data comes from GDPNOW?
Like most economic models; garbage in, garbage out.
In the last post on GDP I asked the question, how will the $100s billions of AI investment affect GDP? The answer seems to be, by a lot. Real gross private domestic investment growth is now pegged at 5.6% in the GDPnow model. With that component being around 17% of GDP it will be hard to go into recession.
“The key is not how good or bad the data is, but rather anticipating what the model expects. “
I like the phrase, although I don’t understand it completely.
Thank you
What frequently happens is the GDPNow forecast increases on bad data and drops on good data.
This happens because the forecast changes not on the data itself but rather what the model expected.
Today provides a good example.
The trade deficit went from $-69.4 billion last month to $-74.6 billion this month.
Is that a good result?
On the surface the answer is no.
Yet, GDPNow rose 0.2 percentage points because the model expected worse.
Why did the model expect worse?
Likely because it overreacted to the advance trade numbers.
The advance trade numbers are goods only. The full trade report out today was goods and services.
You also have a hint of this in the Bloomberg consensus estimate of $-75.2 billion. The deficit was worse than last month but better than expected.
I came to read the new article and I had not seen this response, thank you.