So why does GDPNow show government spending as a negative contribution to GDP?
That question came my way on Twitter.
I answered “I suspect the model thinks a downturn in state spending will offset government spending”
I posed the question to Pat Higgins, creator of GDPNow.
Reply from Pat Higgins
Hi Mish
The model has real federal government expenditures increasing 1.7 percent and real state+local government expenditures decreasing 7.8 percent this quarter [at annualized rates]. You can see this in rows 14-15 of the tab TrackingHistory.
So you are largely correct. Within state+local spending, much of the decline is concentrated in “compensation of general government employees” [NIPA tables 3.10.5 and 3.10.6] which accounted for 61% of state+local government expenditures last quarter.
The model uses state+local payroll employment, which declined by nearly 1 million jobs last month, to forecast that subcomponent of State and Local (S+L) expenditures.
The model is only going to account for features of the CARES Act of 2020 to the extent it shows up in the GDP source data when it is released. Also real disposable personal income is used to estimate the model’s factor, but not to directly forecast yet-to-be released consumer spending data.
Best regards,
Pat
One can download the spreadsheets to follow what he is saying.
But the short answer is the model believes states were clobbered more than enough to offset Congress’ $2 trillion stimulus package, most of which does not impact GDP because it was a transfer payment.
Transfer Payments
Government spending directly contributes to GDP. But transfer payments do not constitute government spending.
Transfer payments include Social Security, Medicare, unemployment insurance, welfare programs, and subsidies. These are not included in GDP because they are not payments for goods or services, but rather means of allocating money to achieve social ends.
GDPNow Forecast is Negative 51.2 Percent
The May 29 GDPNow Forecast is Negative 51.2 Percent
The New York Fed Nowcast estimate took a dive to -35.5% from -30.5%.
Transfer payments do count towards income, thus accounting for the income surge.
GDP forecasts plunged because Income Surges as Spending Drops Most on Record
Curiously, if the government paid people to howl at the moon, that would be a service and would count towards GDP.
Government spending, no matter how ludicrous counts towards GDP.
This is an example of how ridiculous the GDP measure is.
Mish
I wrote that post last night at 3:30 AM or so and posted it this morning automatically.
I was tied up until now with personal matters and made additions to the post to make it more accurate.
Thanks
Mish, the accuracy of the predictions is truly unknown and alarming. Let’s just remember, before this Covid19, economists use to predict GDP growth or contraction to the nearest percentage point…… today? It looks to me those days are temporarily over? The decimal place has been moved? Are we rounding to the nearest 5percent or 10? It amazes me, how numb most economists and others who are interested in these stats…… I am fortunate enough to have a relationship with the Bank of Canada and to be allowed to follow on their projections and reports…… despite the size difference in our economies, much of the same is going on here in Canada. The GDP forecasts are dismal and merely unknown. I find comfort reading your blog….. to be assured that these times we are experiencing….. is unknown, uncertain and that even the experts are being challenged to maintain the accuracy of their previous predictions. My 2 cents this mor I g, now to milk the goats!
According to this page (https://www.bea.gov/system/files/2020-02/gdp4q19_2nd_0.pdf) federal government spending contributed $1.4T to GDP. The majority of government spending (transfer payments) do not directly contribute to GDP.
Economic analysis is a waste of time. Buy stocks now and enjoy the record monetary and fiscal stimuli. S&P500 at 4000+ before November. You snooze, you lose! haha
Economic analysis is useless at the end of days.
I don’t think the stimulus checks or unemployment payments are counted as GDP. When people spend it on goods and services then that counts. If you wanted to juice GDP then you would give the people 1200 to perform a service like clean up litter or something.
I believe, as properly understood on this blog, that all government spending is GDP positive.
Government spending directly contributes to GDP. But transfer payments do not constitute government spending.
Curiously, if the government paid people to howl at the moon, that would be a service and would count. I am going to add that blurb to the post.
Central Banks will pump half a quadrillion (with a Q)into Wall Street this year alone to prop up stocks, on top of the hundreds of trillions pumped into the “market” since 09,most if not all goin into FANGS.Main street gets $1200 or roughly 1% of the Street’s massive cash pile,so tell me who does the politicians in DC bow down to?
“Main street gets $1200 “
The only reason they got that, is so they could then be told to turn around and pay it back out as usury to the same banksters which got the other 99%….
It’s America, dude! The progressive, financialized one. Paying usury to leeches, with others’ children’s money, is what we do. Anything more useful, like counting and stuff, is too complimecated for us.
I’ll let y’all know when I get mine. 😀
Here are TrueCar estimates for May auto sales:
May forecast by manufacturer – BMW (OTCPK:BMWYY) -43.0% to 17,122 units, Daimler (OTCPK:DDAIF) -41.5% to 17,588 units, Fiat Chrysler Automobiles (NYSE:FCAU) -43.3% to 124,072 units, Ford (NYSE:F) -37.2% to 145,484 units, General Motors (GM) -27.3% to 190,125 units, Honda (NYSE:HMC) -21.1% to 114,850 units, Hyundai (OTCPK:HYMLF) -24.1% to 51,961 units, Kia (OTCPK:HYMLF) -28.1% to 43,188 units, Nissan (OTCPK:NSANY) -53.9% to 60,893 units, Subaru (OTCPK:FUJHY) -25.9% to 47,380 units, Tesla (NASDAQ:TSLA) -28.8% to 8,051 units, Toyota (NYSE:TM) -23.1% to 170,808 units, Volkswagen (OTCPK:VWAGY) -19.5% to 48,296 units.