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 sits at 0.9% and Nowcast at 2.9% so the Discrepancy widens by a tick to two percentage points.
GDPNow Latest Forecast: 0.9 percent — March 31, 2017
The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2017 is 0.9 percent on March 31, down from 1.0 percent on March 24. After this morning’s personal income and outlays release from the U.S. Bureau of Economic Analysis, the forecast for first-quarter real consumer spending growth fell from 1.4 percent to 0.8 percent. The forecast of the contribution of net exports to first-quarter real GDP growth increased from -0.49 percentage points to -0.16 percentage points after Tuesday’s Advance Economic Indicators Report from the U.S. Census Bureau.
FRBNY Nowcast Latest Forecast: 2.9 percent — March 31, 2017
- The FRBNY Staff Nowcast stands at 2.9% for 2017:Q1 and 2.6% for 2017:Q2.
- Negative news from consumption data reduced the nowcast by about one-tenth of a percentage point for both quarters.
Consumer Spending Disaster
I expected today’s personal income and outlays report would change the forecast by about half a percentage point to the downside. It was a disaster.
Instead, GDPNow and Nowcast both declined a mere 0.1 percentage points. Why?
The following table from GDPNow helps explain.
In between reports, the effect of the advance economic indicators was +0.2 percentage points. Thus the personal income and outlays report did have a sizable impact.
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Mike “Mish” Shedlock
At least they are consistently inconsistent.
I think seeing a decline in personal spending is good. People buying less crappy stuff they don’t need.
We want investment not just the consumption of junk
I think the economy is on an uptrend. Business investment could lead this. Lots of cash on balance sheets.
Most businesses are more optimistic than at anytime since 2008.
If consumers were choosing not to buy social media services then I would say that the economy was getting stronger. If consumers were delaying purchases of durable good such as automobiles I would say that was good for the economy since less consumer debt is being used. Unfortunately neither is likely to happen any more than consumers demanding lower healthcare costs and demanding that the rule of law be upheld (antitrust, monopoly, deceptive practices, etc). There are a good many changes in consumer spending behavior that need to change that will hurt GDP in the short run but improve it in the long run. But given human nature I don’t see much chance of that happening.
Doesn’t it usually only happen when it’s forced by circumstance else people carry on trucking the way they have always trucked.
Human behavior is mostly habitual, we form or create habits throughout our lives, many good and some bad. I used to eat toast with butter and jam with my breakfast, did for a great many years. But I had to eliminate that habit since the type of calories weren’t doing me any good and my metabolism has slowed with my age.
People rarely change political affiliation unless they perceive a need to change. The thing about political affiliation is that most individuals do not really know what they “believe”, they have never questioned their beliefs. The irony is that even politicians seldom bother to question what they think they believe. Humanity if anything is a big contradiction, we often live our lives with little thought. Such is the power of habit. So when confronted with choices we often defer to habit. But when the differences are great enough we forego the old habit and choose differently. When circumstance forces us to quit that old habit, the old habit is not extinguished. This is why addiction is a difficult problem, it involves the personality as well as the body.
Some neighbors of mine recently lost their jobs (company leaving state), and so they canceled their lawn cutting service this upcoming summer. According to them, they were paying about $180/month for 7 months to get their lawn cut, leaves collected, etc.
Since I cut my own lawn, they asked me for help getting their old lawn mower (still in their garage) back into fighting shape. Had to replace the blade (hardly worth the effort to sharpen anymore), the carburetor was gummed up, replace the spark plug, a whole lot of WD-40 everywhere. Maybe $110 worth of parts (and I guess a little free labor from yours truly). Obviously these unemployed people will be supplying “free” labor to themselves cutting their own grass.
So GDP is getting dinged $180/mo * 7 mths. The after market parts business got a $110 worth of new business. GDP is down $1280, and up $110 … for a total impact of down $1170 for the year (or season anyway).
But then, cutting your own grass implies you get off the sofa and get however much exercise pushing the mower around. And you get a couple hours a week in fresh air. So there are significant physical health benefits, and they don’t appear in GDP.
You also aren’t watching the cr-p that passes for TV shows, the fake news, and the endless temper tantrums of Washington DC criminals… which means there are significant mental health benefits too, and again they don’t appear in GDP.
The pride of accomplishing something for yourself also yields mental health benefits, kind of like winning a sports game. More mental health benefits that don’t appear in GDP.
And then there is much less debt in the system, as the $180 goes toward paying down debt (or not incurring new debt)… for some reason that only makes sense to brokers and politicians, being less in debt is somehow a bad thing (for them!) but it is a good thing for the consumer.
Everyone likes to look back with nostalgia of the time when we all had less debt, better jobs, pride in our homes and neighborhoods, and as a nation we were happier and more confident… as dumb as this sounds, a lot of it starts with cutting your own lawn.
oops… the neighbors saved $1260 in lawn services, for a net GDP drop of $1140.
But the physical and mental health benefits, the reduced debt, the re-discovered pride in your house/neighborhood are still real intangible benefits that leave the country better off, even if GDP doesn’t show it
Excellent post.
“Discrepancy Between GDPNow and Nowcast is Two Percentage Points Once Again”
Has this become another FED 2% target? Another dual mandate? 2% inflation and 2% NOW/Nowcast discrepancy? The FED is leaving everyone confused, including themselves.
GDPNow forecasts are too volatile. They need to be averaged out for 2 or 3 months to smooth the result.