Following Friday’s mediocre jobs report, the Atlanta Fed GDPNow Forecast made a surprising leap.
The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2016 is 2.2 percent on February 5, up from 1.2 percent on February 1. After this morning’s employment report from the U.S. Bureau of Labor Statistics, the forecast for real consumer spending growth increased from 2.5 percent to 3.0 percent and the forecast for real gross private domestic investment growth increased from -0.4 percent to 2.1 percent.
GDPNow Chart
Why?
I pinged Patrick Higgins, senior economist at the Atlanta Fed and he provided the following explanation:
Hi Mish,
About 30 series from the employment situation report are used to calculate the dynamic factor that feeds into the forecasts of the monthly source data for the model. The January 2016 value of the dynamic factor was -0.73 after the February 1 GDPNow update and is 0.04 as of today. The factor has mean 0 and standard deviation 1, so the current estimate for January is very close to average. To provide some historical context, the value of -0.73 was about in-line with values seen in late 1991 and early 2003.
It is technically complicated to decompose how much particular variables in the employment report are responsible for the rise in the dynamic factor. One thing that can be said, however, is that it’s not due to average hourly earnings growth since that variable is not in the model. Also less weight is being put on the January ISM Manufacturing report since we now have more January data than we did on February 1.
Patrick Higgins
It’s not easy to predict which way the Nowcast will move following economic data releases. I expected lower because of bad economic reports across the board. What seems to have happened is the initial forecast was simply too pessimistic.
This does not change my assessment of the economy. GDP revisions are the norm, especially at turning points, and it seems likely the economy is at that turning point.
Mike “Mish” Shedlock
How in the world can you believe any of the data as we just change formula on the math to suit there agenda ? It has become a joke of fuzzy math fluffed numbers. Just lie after lie. We do not count 96 mil people that can work, i get that half are retired and under 18 years old. But that sill 45 mil not counted, so it looks like the data is fine and we do not print the truth as the house of cards would just fall apart. We can not print a good GDP number so we add pension to the formula to the tune of 500 bil now it looks ok. So we never talk the real facts and never make the changes we need to move forward ? You had 50,+ retails sales jobs added in a month that layoffs were in full swing from Xmass Jobs? But not one person question the math, more lies. I am just a simple man but can see that there is no way the math adds up?
Fake jobs driving fake GDP. Mish has much more credibility than the Federal Reserve. Garbage in, garbage out what could possibly go wrong.
CFNAI-MA3 is a comprehensive number. Still not to recession levels yet. Needs to go below -0.7
http://etfdailynews.com/2016/01/22/chicago-fed-economic-growth-below-average-in-december/
We need better terms for economic performance. The problem with overall global economy is we are still trying to overcome debt overhang of 2000s. Banks are still zombies eating up capital and the economy. So is the stock market that is a casino.
Auguring the entrails of a goat for the King was always about barbecue goat for the magician after the King went home.
Those models sound so, so sophisticated. BS. Compared to the actual phenomenon (the economy) they are unbelievably trivial. Not surprising that they give bad predictions. And then there’s the debt. But not to worry. Our elites will figure something out. Just shut up, and get in line for your goodies. NOW. All is (or will be) well.
Mish, do you believe a word Mr Higgins wrote? I don’t! I know B/S who I see it. I’m no economist, but I am educated to think for myself. Thanks for exposing this. – Robby
Just another reminder economics is more about art than science
GDPNow Jumps to 2.2% Following Jobs Report: Atlanta Fed Explains Why
Propaganda. Case closed.
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I wouldn’t believe any number this administration puts out. Every word out of their mouths is a lie looking for the truth.
I remember using stepwise linear regression analysis in the 1960s with the intention of predicting industry growth. Even knowing the coefficients for each variable, it was difficult if not impossible to predict outcomes. We often diddiled and fiddled with our variables by adding and subtracting them in order to obtain a better curve fit. But at the end of the day, we never found any way to confidently predict the future.
So, when it comes to organizations that hide both their methodology as well as their data inputs . . . I seriously question how anyone would rely on their forecasts.
My impression here in East Central Florida is the economy is heating up. Lots of great, high paying jobs opening up. SpaceX is hiring as is Blue Origin. Embraer is opening another plant and the new bomber is going to be designed and engineered here via Northrup.
Went to the Mall today (had to buy a couple of new suits) and the place was hopping. Traffic is getting ugly with lots of new cars on the road. And our property taxes are going down! When I bought my house in 2001 they were $1845 for the year. This year $1222!
And Autumn has finally arrived. Leaves are turning and dropping. And spring has arrived at the same time! Azaleas are in full bloom.
Granted, one part of the country might be doing great while others are struggling.
“And Autumn has finally arrived.”
Were you being sarcastic?
Maybe GDPNow is 2.2% because the economy is continuing to grow at the slow but steady rate of 2%? I know that causes cognitive dissonance for the doom and gloom crowd as you look for some other, more complicated explanation.
The fundamental problem is that GDP is a bad measure of the economy.
GDPNow Jumps to 2.2% Following Jobs Report:..
What a total load of Horse Pucky..
Like the Blog site Raging Bull sez..
“If You Can’t Dazzle Them With Brilliance, Baffle Them With Bull(shit)
Obama said he wasn’t about blowing smoke… Right.. He has his lackies do it for him.
It has come to a point of where I don’t believe a friggin thing Obama or any federal bureaucrat has to say.
I WONDER HOW THE US ECONOMY WOULD LOOK IF IT WAS MEAUSRED BY THE GNP INSTEAD OF THE GDP? IN FACT IF WE WENT BACY TO THE GNP CORPORATE INCOMES OVERSEAS WOULD BE TAXABLE!
Sarah…(IF WE WENT BACY TO THE GNP CORPORATE INCOMES OVERSEAS WOULD BE TAXABLE!)..
Don’t hold your breath on that one. Congress has been Bought & Paid For by the corporations you want to tax on their foreign profits. Congress will do as their $$ masters order.