GDP estimates for third and fourth quarter are now in a free-fall.
Last Friday the FRBNY Nowcast was in a blackout period because of the FOMC meeting on Wednesday.
Today we see estimates tor the last two weeks. Let’s also take a look at my guess of the estimates vs. how the estimates came in.
September 23, 2016 Nowcast Highlights
- The FRBNY Staff Nowcast stands at 2.3% and 1.2% for 2016:Q3 and 2016:Q4, respectively.
- Negative news since the report was last published two weeks ago pushed the nowcast down 0.5 percentage point for both Q3 and Q4.
- The largest negative contributions over the last two weeks came from manufacturing, retail sales, and housing and construction data.
3rd Quarter Nowcast vs. GDPNow
GDPNow is still strongly divergent with the Nowcast. However, the current GDPNow estimate of 2.94% is down from the initial August 3 estimate of 3.64% and the peak estimate on August 5 of 3.80%.
3rd Quarter Nowcast Detail
It’s not the data itself that matters, but rather how well the data came in vs. what the model estimated. Since the last estimate, nearly all data did worse than the model expected.
4rd Quarter Nowcast in Free-Fall
The initial 4th quarter Nowcast was 2.01 on August 26. On September 20, the Nowcast stood at 1.22.
October Surprise Revisited
On September 19, the Wall Street Journal was talking about an “October Surprise” to the upside. My rebuttal, on the same day was 3rd Quarter GDP: October Surprise? Which Way?.
Guess of the Next Nowcast Guess
Based on recent data, my guess of the next FRBNY Nowcast guess is 2.4% for third quarter and 1.4% for 4th quarter. We will find out this Friday.
On Oct. 28, 11 days before the Nov. 8 presidential election, the Commerce Department’s publishes its first (advance) estimate of gross domestic product for the 3rd quarter.
Meanwhile there’s 39 days for economists to change their minds as to what will constitute a “surprise”.
As it stands now, 2.8% to 3.0% is a consensus estimate, not a surprise.
By definition, surprises have to be what most don’t expect.
I suspect 3rd quarter GDP will be closer to 2.0% than 3.0%. I will make a comparatively shocking prediction of 1.8%, subject to revision between now and the final guess everyone gets to make.
There’s still five weeks of economic data yet to come in.
If the inventory build occurs that economists expect, it will be at the expense of 4th quarter GDP.
No miracles are to be found in Janet Yellen’s hat.
Existing Home Sales
On September 22, I commented Existing Home Sales Sink Second Month: NAR, Economists Surprised.
“I am going to mentally take a couple of ticks off of my guess of the next FRBNY Nowcast report due tomorrow. Most likely it will be a surprise to the economists.”
My initial guess of the guess was nearly spot on. However, today’s Nowcast report was through September 20, not September 22.
So mentally subtract another tick or two off the current Nowcast estimates of 2.26% and 1.22% for 3rd and 4th quarter respectively. Next week start off in a hole.
Looking further ahead, if there are more downward surprises, and I certainly expect some, 3rd quarter GDP will be under 2%, perhaps substantially.
October Surprise Indeed!
Mike “Mish” Shedlock
Tony Bennett said:
“October Surprise Indeed!”
Households across America will get the dreaded 2017 health insurance premium renewals.
Kaiser Permante in July:
“Across the 17 cities we examined, the premium for the lowest-cost silver plan is increasing by a weighted average of 9% in 2017”
It’s not just health insurance.
I was notified last week by my insurer (USAA) that my 2017 auto and homeowners premiums will be increasing by 10%. And I have a perfect driving record and have not filed a claim under either policy in more than 25 years. God only knows how enormous the increase would be, if that were not the case.
Tony Bennett said:
Courtesy (in part) by central bank monetary policy. Insurance companies hold $trillions in bonds … and with yields so low no choice but to offset with higher premiums.
Greenspan, stick that “wealth effect” nonsense where the sun don’t shine.
Ron J said:
For wage earners, including the 2,000 to 3,000 which Dell is laying off, it is a wealth defect.
CzarChasm Reigns said:
“a weighted average of 9% in 2017” sounds bad enough…
but my reality is expected to be 20%!!!
FYI – None of the 16 cities cited were in Texas (where I am).
So that’s $8500/yr for the wife and I, going to $10,000, reducing my discretionary income by $1,500/yr. I am not sure I will have ANY discretionary income in 2017. Guess we shall soon see.
Q: How are we NOT hitting that stupid 2% inflation rate goal IF Health Insurance premiums are being properly taken into account?
And it is not just exchange policies that are going up. My husband’s employer has a self-insured plan (along with other plans). Our premiums for that are going up 75 percent this year. I am NOT complaining at all; it is still an extremely generous plan. I think they must have mis-estimated how much medical treatment people would need when they set the original premiums. But the reality is that this increase will affect household budgets; there is no way around that.
CzarChasm Reigns said:
Mine is not an exchange policy either. And oddly enough, our company policy was a better deal than the exchange.
The company is small, so they are also considering “leveled funding” which is apparently some type of modified “self-insured” scenario. If insurance can’t keep costs down & companies end up doing their own insurance paper pushing to save a few more bucks, what service are the insurance companies actually providing?
Jon Sellers said:
Self-insured plans jump wildly year to year. One or two people could have million dollar healthcare bills and throw the plan completely off-kilter. My employer is self-insured and the actuarial funding requirements for a couple of high years left a lot of money in the piggy-bank over the last couple of years. So our premiums are actually going down this year.
Self-insured company plans should have stop-loss insurance in place to cover both specific and aggregate claims. Unless the CFO is clueless. The largest specific claim I ever saw was for pre-mature twin births in San Francisco. In the neonatal ward for weeks of round the clock care. Well over $1 million in the early 2000’s.
Thomas L. said:
Specific stop-loss yes. As a former health insurance actuary, any time I gave the quote on aggregate stop-loss, somebody else got the business. For the years where medical inflation is underestimated (about half of them), insurance companies can and do lose a ton on aggregate stop-loss.
Fact is, insurance is hard, and requires a systems approach to avoid things like an assessment spiral. Legislators suck at making hard decisions, hence out of control government pension costs and “disability” payments.
Hope and change is peddling fiction…
Otis the Sweaty said:
Recession next year? I’m thinking 2019.
Sounds like Humpty Dunpty is getting ready for next January. In the meantime, Mexico just announced they are devaluing the Peso. Hopey-Dopey Obama is busy playing golf.
System is busted. Nobody, nothing going nowhere until we have a major event to clear out the garbage.
How succinct, I agree. That event will be a debt extinction like the world has never seen. A Debt Star Luke Skywalker. Bam!
Dreamt of a 10-way Mexican stand-off, on an ice floe, with a bunch of hungry polar bears on their way. The Fed, CBs and especially economists aren’t the ones worth paying any attention to. They’ll just be describing the carnage while getting chewed on.
Witch Doctors have adapted for the 21st century but it’s still just rattles and bones with a few potions thrown in.
Tim Wallace said:
I was just looking at a bill for my health insurance in 2009 – with my wife and four children it was slightly more than $9’000. At the beginning of this year, for my wife and two children, the plan was now at $36’000 including a $5’000 contribution to an HSA because it IS a “high deductible” plan.
Don’t THINK I will EVER vote for a Democrat!
Stuki Moi said:
The GOP, as currently constituted, are 90% as bad. Fighting as hard as they can against Americans’ freedom to avoid death and debilitating illness by buying drugs in places where their prices are affordable to them. And ditto for hiring doctors from similar places.
Ron J said:
I don’t recall having heard one republican talk of enforcing USC 15.
Both political parties have supported monopoly. Democrats support government monopoly and the republicans, private monopoly.
Neither help the consumer.
Trump needs to appoint “expert” advisors who are not Zioglobalist traitors, assuming, which we must, that he is not a Zioglobalist sell-out/traitor himself. His most pressing challenge will be to engineer a wholesale cleanout of the disloyal bureaucracy which has infiltrated our intelligence, military, educational systems and to abolish the Fed. He will need all of the support we can provide to counter the disinformation and crises that will be engineered by the dying Zioglobalist cabal.