On Friday, the FRBNY Nowcast estimate for first quarter GDP dipped from 3.2% to 2.8%.
That makes the spread between Nowcast and GDPNow 1.9 percentage points. However, that straight-up comparison is invalid for reasons discussed below.
First, let’s investigate Nowcast changes.
March 17, 2017: Highlights
- The FRBNY Staff Nowcast stands at 2.8% for 2017:Q1 and 2.5% for 2017:Q2.
- This week’s news had a negative impact on the nowcast, which declined 0.4 percentage point for Q1 and 0.5 percentage point for Q2.
- Retail sales, housing and construction, and manufacturing data all had negative contributions for both quarters.
Nowcast 1st Quarter History
Nowcast 1st Quarter Detail
Significant Changes
- Retail Sales: -0.133
- Building Permits: -0.140
- Industrial Production Index: -0.087
- Capacity Utilization: -0.093
- Data Revisions: +0.112
The net effect of the above five items is -0.341. The net change from March 10 to March 17 was -0.360.
Retail Sales
On March 15, I commented Retail Sales Rise 0.1% in February, January Revised Higher, Auto Sales Decline: Spotlight on Weather and Seasonal Adjustments.
I thought the report was on the weak side, not only because of the low headline number but also because of the decline in auto sales. Econoday suggested averaging January and February, and that is a reasonable approach.
January was revised from +0.4% to +0.6% making the two-month average about +0.35%, a respectable total. Perhaps that accounts for the +0.112 the Nowcast assigns to “Data Revisions“.
Overall, the standout item in the report was the drop in auto sales for two consecutive months. Auto sales fell 0.2 percent in February and 1.3 percent in January.
Housing Starts and Building Permits
Starts for February were up 3% but permits were down 6.2%.
In my estimation, this should have added to 1st quarter GDP but subtracted from future GDP. Permits will translate into starts sometime down the road, not immediately.
Industrial Production and Capacity Utilization
I commented on IP-CU on March 17 in Industrial Production Flat, Manufacturing Jumps: Another Weather-Related Phenomenon?
Click on the link for a series of 9 charts.
The manufacturing component took a big jump but in perhaps another weather-related related event, industrial production was flat.
The rise in manufacturing was arguably a good sign but the overall number and year-over-year comparisons were not encouraging.
Year-Over-Year Numbers
- Index: +0.31%
- Manufacturing: +1.39%
- Motor Vehicles and Parts: +2.62%
- Crude: -1.96%
The strongest component on a y-o-y basis is motor vehicles, but there are strong retail sales signs that suggest the best days for auto sales are in the rear view mirror.
GDPNow
GDPNow did not comment on Friday’s Industrial Production numbers. This is the way things appeared on Thursday, March 16.
Did the Spread Shrink?
As noted above, the spread is now down to 1.9 percentage points as of Friday. But GDPNow did not comment on Friday’s IP-CU report. The next release for both GDPNow and Nowcast is Friday, March 24.
Had GDPNow updated its forecast on Friday, it’s likely, but not guaranteed that its 1st quarter GDP estimate would have declined as well.
We cannot say for sure, but my guess is that GDPNow would have further declined by 0.2 or 0.3 percentage points. It’s possible the spread widened.
Let’s assume the IP-CU impact on GDPNow was -0.3 percentage points.
That would keep the spread between the two estimates above 2 percentage points, meaning they both could still be wrong, even with a margin of error of +- 1 percentage point.
For further discussion, please see Rogue Nowcasts: 67% Chance Both are Wrong.
Final Comment
As noted previously, Models Don’t Think.
However, I like the reports because I can make weather-related adjustments, auto-related adjustments, and housing-related adjusts, etc. as I see fit.
Over time, one can learn what is likely to matter and what doesn’t, even if the models cannot make such adjustments.
Mike “Mish” Shedlock
Keiser Report: Economic Populism (E 1046) with Mish
Hey, Mish, what pizza do you like that he didn’t? Hopefully it isn’t just local to Chicago. I really enjoy Chicago style deep dish pizza.
LikeLike
My favorite pizza is from a place called Chicago Pizza and Oven Grinder. I took Steve Keen there once and bet him it was the most unique pizza in the world. He paid up, but labeled the pizza unique but good, not excellent. I made the same bet with Max, but Max would not pay up because he said it was not pizza.
https://www.google.com/#q=chicago+pizza+and+oven+grinder&*
The “upside-down pizza in a bowl” pot pies turn guests “giddy” at this cash-only “Lincoln Park institution”, a “wood lodge look-alike” that also excels with Italian grinders
This is a great video
LikeLike
Let them eat pizza.
LikeLike
I’m in the not pizza camp, it’s more like Mediterranean Shepherd’s Pie. And portobello mushrooms to feed the City of the Big Shoulders LOL. But the cash only business must warm the cockles of the libertarian hearts here.
LikeLike
Oh, yeah, I’m sure I’d love that! Too bad it’s just in Chicago and 15 miles from O’Hare at that. Why is GOOD deep dish pizza so hard to find anywhere? Papa Murphy’s had a great bake it yourself deep dish pizza, but they no long offer it. Their Chicago style stuffed pizza has too high of a crust to meat & sauce ratio.
https://www.papamurphys.com/menu#menuBannerPopup
LikeLike
GDPNow and Nowcast. Atlanta Fed vs. NY Fed. This is a cliff hanger which will climax on the first estimate of Q1 GDP.
LikeLike
And why is this going to change? Obamacare is sucking the life out of our economy and the GOP Congress refuse to fix anything. We are watching hundreds of retailers closing stores, and no real wage growth. The paper hangers are the only ones getting richer. We are back to 2007 with home prices and the market out of the control. Subprime car loans and student loans are blowing up all over the place and yet the FAKE NEWS keeps telling us how much better things will be in the coming months. Interest rates are rising and how is that going to improve the economy?
LikeLike
Its still Obama’s crappy economy.
Trump promised to repeal obama-care, but so far has only allowed that creep Paul Ryan to propose Ryancare instead (which isn’t any different or any better). Hopefully Trump will stop playing with the criminals in Congress (both parties) and do what he promised — otherwise Trump’s ego is going to get a bruising he isn’t used to.
PS — interest rates are rising because Bernanke / Yellen forgot that there are two sides to a balance sheet. You can’t just look at cheap mortgage rates for borrowers, you also have to consider the cost to people who save for a rainy day (aka savers). Without a savings pool, the rest of the economy comes crashing down like Zimbabwe. There was way too much debt in 2007-8, lower interest rates just made the debt problems worse.
LikeLike
Quite so, powerlessness, and the market ignoring the rate setters too.
I’ve been trying to think of an analogy to an Autonomous Vehicle but can’t find the words. The vehicle is now officially out of control and the driver powerless except to accelerate a crash.
LikeLike
Right, nothing has changed and it’s going to take a hell of a lot to change it. We used to have political wrangling the ended with something, now we have The repubs against the dems and both of them against the president. The ACA replacement is going nowhere by design, and Ryan/McConnell are laughing in private.
LikeLike
Lets see if Ryan stays as speaker. He had a failed run for President in 2012, and was put into the speakers spot as a bench warmer after Boehner’s failure. If other republican liars, I mean politicians, are to be believed, Ryancare is already dead.
I don’t understand why Trump is supporting Ryancare — what happened to Trump’s promise to repeal? Why is it bad to take insurance (not care) away from the poor, but somehow it is not bad to take everything (insurance and care and money) away from taxpayers?
Screwing up the tax base to benefit the welfare class is just plain dumb. Time to stop playing with the criminals in Washington, drain the swamp, and get the post office morons out of health payments altogether. Keeping overpriced bureaucracy involved in healthcare is a regime threat, even if the regime is too dumb to realize it. The cancer can’t be bigger than the host body — without killing both.
Trump will be a lame duck president by this fall if he doesn’t repeal Obamacare as he promised. Hope someone in his entourage spells it out for him in exactly that wording.
(the democrats won’t be able to capitalize on it, they have a serious ethics problem even by political standards. The dinosaur republicans like McCain, McConnel and Ryan have discredited themselves)
LikeLike
I think it’s all deep state influence on Congress. I used to think that Cynthia McKinney was a nut when she was talking about the AIPAC Pledge until I looked at it. She was right. She has a lot to say:
http://phibetaiota.net/2016/04/on-alex-jones-now-cynthia-mckinney-followed-by-robert-steele/
LikeLike
As healthcare soars it feeds the illusion of growth however, what we are really seeing is a transfer of wealth from one sector of the economy to another. This healthcare spending has slipped into the false narrative of a “growing economy” spoken by people with a poor understanding of what constitutes real growth.
Money spent on healthcare feeds the illusion of growth by driving the GDP ever higher but like any tax it is really government taking more and more. This is much like another tax that is simply being recycled back into the system. The piece below exposes why labeling this as growth is so misleading.
http://brucewilds.blogspot.com/2016/06/soaring-healthcare-sector-wrongly-feeds.html
LikeLike
It is NOT being spent on healthcare. It is being spent on all sorts of corruption… from non-profit hospital administrators making seven figure incomes, to an infestation of FDA bureaucrats demanding pseudo-science “tests” on new pharmaceuticals, to another army of Medicare bureaucrats that pay random amounts 16 months late, to legal requirements to “treat” inner city crime and domestic abuse problems (both of which are police matters, not health), to the budget decision not to treat mental illness (they closed mental hospitals all over), and the absolutely warped liberal notion that illegal immigrants should get “free” healthcare paid for by middle class taxpayers (that’s welfare costs)… At least half of what gets labeled US healthcare spending is really an accounting error
Despite the democrats whining and smoke / mirrors distraction, the profit margins of pharmaceutical companies is a LOT less than what the software industry enjoys.
The giant welfare system that is attached to actual health care spending is what Obamacare is designed to protect and increase — at the expense of middle class taxpayers (who then become poor / dependent on the system that screwed them).
Obamacare (and Ryancare which would be the exact same crime) are designed to destroy taxpayers, especially what is left of the middle class
LikeLike
This partially ties in with autonomous vehicles:
LikeLike