You can almost drive a truck between those estimates.

What's Happening?

  • In many past quarters, the GDPNow estimate started high then steadily plunged.
  • This quarter, the GDPNow forecast started high and the spread widened

GDPNOw Factors by Date

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The spread first widened on May 31. We can compare to Nowcast factors.

Nowcast Factors by Date

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Construction Comparison June 1 (Yellow Highlights)

  • Nowcast: +0.08
  • GDPNow: +0.10

The construction report, considered "hard" data, played no part in the discrepancy. The difference is a small rounding error only.

PCE, Trade, Jobs, ISM Comparison May 31 (Yellow Highlights)

  • Nowcast: +0.25
  • GDPNow: +0.60

I do not have a precise breakdown of GDPNow. But in the past, ISM has goosed GDPNow substantially. ISM is considered "soft data". Nowcast's three ISM categories added only 0.04 to the Nowcast estimate. The three Nowcast employment categories (counting ADP - the last line), added nothing.

Housing Starts and Permits June 22 (Red Highlights)

  • Nowcast: -0.10
  • GDPNow: +0.10

GDPNow and Nowcast reacted in opposite fashion to the same data. Unlike May 31, there is no confusion as to the origin of the discrepancy.

What Happened?

  • The initial GDPNow forecast was 0.9 percentage points higher (4.1 GDPNow vs 3.2 Nowcast).
  • GDPNow blasted higher on a mix of both hard and soft data
  • Nowcast did not react as positively to ISM as did GDPNow (my estimate, not a certainty)
  • Nowcast and GDPnow acted in opposite fashion to the construction report

Why?

The "what" is easy to explain the "why" is a guess.

  1. I maintain that GDPNOw overreacts to ISM. We have seen that behavior before and I have written about it.
  2. Starting this quarter, Pat Higgins changed the GDPNow model to reduce volatility of reports at the beginning of each month. I believe that may be a factor.

I wrote about point number two on April 30, the initial GDPNow forecast for the quarter: Here We Go Again: GDPNow Projects 4.1% GDP

Pat Higgins Model Change

Today's update incorporates modifications to GDPNow's dynamic factor model as described here. [Mish Note: the dynamic factor model is for economic geeks only].

The dynamic factor is used to forecast yet-to-be released monthly GDP source data. The modifications to the factor model are intended to partially dampen some of the volatility in GDPNow forecasts in the early part of each month.

Model Change Go Haywire?

I do not know.

Was the rise due to volatility suppression? That's essentially the same question. Again, we cannot say for sure.

All we can say for sure at this point is the Nowcast model expected strong reports. The economic reports were not strong enough to send the NOWcast estimates higher.

In contrast, the data exceeded the GDPNow model forecast, sending those estimates higher.

The latest "Blue Chip" (paywall) monthly estimate according to GDPNow is 3.5% as of June 6 or so. Blue Chip is nothing more than a survey of 50+ economists' expectations.

The spread is now so wide that both GDPNow and Nowcast may easily miss their alleged margins of error.

Mike "Mish" Shedlock

Gap Between Nowcast and GDPNow Narrows to 1.9 Percentage Points: Or Does It? What Happened?

On Friday, the FRBNY Nowcast estimate for first quarter GDP dipped from 3.2% to 2.8%.

GDPNow Forecast Surges to 4.7%: Spread to Nowcast an Amazing 2.7 Percentage Pts

Following today's ISM and construction reports, the GDPNow forecast for 3rd-Quarter GDP rose to 4.7%. Nowcast is 2.0%.

Discrepancy Between GDPNow and Nowcast is Two Percentage Points Once Again

In the past week, the GDPNow Model declined by 0.2 percentage points. The Nowcast Model for first quarter GDP inched down by 0.1 percentage points.

GDPNow, Nowcast Divergence Remains One Percentage Point

In response to poor economic data this week, both the Atlanta Fed GDPNow Model and the FRBNY Nowcast Model reduced estimates by about 0.3 percentage points.

Divergence Between GDPNow and FRBNY Nowcast Hits Two Full Percentage Points

Since February 24, a string of bad economic reports drove the Atlanta Fed GDPNow estimate for 1st quarter GDP from 2.5% to 1.2%

Nowcast GDP Estimate 1 Percentage Point Higher Than GDPNow

Following Friday's jobs report the GDPNow forecast slid from 3.2% to 2.9%.

Huge Difference Between GDPNow and Nowcast Models

The Atlanta Fed GDPNow and the New York Fed Nowcast GDP models once again are wildly different.

Dueling Forecasts: GDPNow 4.2% vs Nowcast 1.8%

For the first quarter, the initial GDPNow forecast was 2.3% on January 30, 2017. The GDPNow forecast spiked quickly to 3.4% then crashed to a final estimate of 0.2% on April 27.

GDPnow, Nowcast Boost Fourth-Quarter GDP Estimates

GDPNow upped its 4th-quarter GDP estimate to 3.3% from 2.9% a week ago. Nowcast upped its forecast to 4.0% from 3.9%.