On Friday, April 28, the BEA will release its preliminary estimate for first quarter GDP.
Prior to that release, here is a compilation of six estimates from ZeroHedge, GDPNow, Nowcast, ISM, Markit, and me.
GDPNow Forecast: 0.5 Percent — April 18, 2017
FRBNY Nowcast: 2.8 Percent — April 21, 2017
Model Flaws
- Nowcast uses no hard auto data: This is a serious error. Autos account for 20% of retail sales and fleet sales are also very important.
- Nowcast has an incorrect reliance on unemployment rate: People dropping out of the labor force and actual employment rising can both move the number in the same direction. Both things cannot mean the same thing.
- ISM vs PMI: Both reports measure the same thing, yet those reports signal very different things. At least one of them is wrong. GDPNow and Nowcast both rely on ISM even though the PMI reports have been more accurate, at least recently.
- The GDPNow and Nowcast models both suffer from an inability to think. The weather provides a nice example. In December, the weather was unusually cold, causing Industrial Production numbers to soar (heat and electric production), for the entire upcoming quarter. I estimated in advance, January would take away those numbers. My assertion played out, at least for GDPNow. I still cannot account for Nowcast.
ISM vs PMI
I discussed the difference between ISM and Markit’s PMI estimates recently, for both manufacturing and non-manufacturing (services).
- April 3: Markit PMI vs. ISM Fantasyland GDP Projection: Stagflation Lite?
- April 5: Another ISM/PMI Divergence: Non-Manufacturing
- April 21: ISM-PMI Divergence Widens: Markit Estimates 2nd Quarter GDP at 1.1%, Says Profit Squeeze Underway.
On April 3, the ISM made this statement: “The past relationship between the PMI® and the overall economy indicates that the average PMI® for January through March (57 percent) corresponds to a 4.3 percent increase in real gross domestic product on an annualized basis.”
On March 24, Chris Williamson, Markit Chief Business Economist, stated ”The survey readings are consistent with annualized GDP growth of 1.7% in the first quarter, down from 1.9% in the final quarter of last year.”
On April 5, Williamson reiterated “The surveys of manufacturing and services are running at levels consistent with GDP expanding by 1.7% in the first quarter.”
On April 21, Williamson stated “The PMI data suggest the US economy lost further momentum at the start of the second quarter. The surveys are signaling a GDP growth rate of 1.1% after 1.7% in the first quarter.”
For discussion, please see ISM-PMI Divergence Widens: Markit Estimates 2nd Quarter GDP at 1.1%, Says Profit Squeeze Underway.
ZeroHedge April 25 Estimate
On April 25, ZeroHedge replied to my request for a number with “Ok sure, put me down for 0.8%.”
He provided no further explanation, but I did not ask for any.
Mish Estimate History
- On Monday, April 3, on Coast-to-Coast, live syndicated talk radio, I told George Noory I expected GDP would be 0.6%.
- I lowered that to 0.4% following retail sales reports on April 14, as noted in GDP Forecasts Dip Again
- Following the existing and new home sales reports this week, I up my forecast to 0.7%.
GDP Predictions
- GDPNow April 18: 0.5%
- Mish April 25: 0.7%
- ZeroHedge April 25: 0.8%
- Markit April 21: 1.7%
- FRBNY Nowcast April 21: 2.7%
- ISM April 3: 4.3%
The “advance” GDP number for the first quarter comes out on April 28.
What About Rate Hikes?
Whether this is yet another “transitory” period remains to be seen, but one of these downturns will stick.
Three hikes may not sound like much, but there is over a trillion dollars worth of debt that needs to roll over soon, at increasing rates, at a time when consumers are gasping and minimum wages hikes are in play.
The market expects another hike in June and still more hikes later in the year. I sure don’t.
For a look at how the weather impacted factory utilization and thus GDP estimates, please consider Formulas Don’t Think: Investigating Weather-Related GDP.
In that article, I commented on cold weather in December followed by warmer than usual weather in January.
For reasons I do not understand, GDPNow followed my model of unwinding the weather-related effects, but Nowcast didn’t.
Meanwhile, Don’t Worry Weakness is Transitory: Fed Expects a Second Quarter Rebound, Higher Equity Prices.
Final Comments
The GDPNow estimate is subject to change on Thursday, April 27 following Durable Goods and International Trade data. I may tweak my estimate at that time and will let ZeroHedge do the same, but I expect no more than a 0.2 percentage point move.
For the first time all quarter, I have a higher estimate than GDPNow. Housing data caused me to up my estimate up by 0.3 percentage points since mid-April.
If the Fed can convince the market it will hike, the Fed will hike in June. That may be a tough act if first-quarter GDP is under 1%.
Mike “Mish” Shedlock
When close to flat lining the deflator plays an especially key role.
For Q4 real GDP on 3rd estimate was +2.08%
BEA used +2.10% as deflator
BLS CPI for Q4 was +3.05%
if CPI used … real GDP +1.13%
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And we all know that inflation (whether using GDP deflator, CPI or PCE) is grossly under-stated – meaning that real GDP growth has more than likely been near zero (or even negative) for quite some time.
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gdp will print negative for quarter and for the whole year,bea massively cooked numbers to protect Obama,they will not pull that with chump,unless………..
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It very well might print negative if the deflator is high enough
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The Fed is in a corner of their own making.
There is no way to ever raise interest rates to “normal” again.
In a debt fueled economy, it will lead to a depression.
In a debt fueled government, it will lead to default.
Artificially low interest rates forever.
What could go wrong?
It’s amazing no one has ever thought to do this before…
Oh wait.
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Future headlines cc. 2020:
Pension funds declaring bankruptcy after the funds are depleted.
Seniors declaring bankruptcy.
Revolt when government pensions are bailed out by public funds.
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Good start…
Banks declaring bankruptcies
Government take over of 401ks
Bail ins of banks
Government take over of private pension plans
ANYTHING TO KEEP THE SCAM GOING
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Nancy Pelosi tried to steal everyone’s IRA and 401K… but she was stopped when savers said Congress’ own retirement kitty would be raided too. And Congressional staffers.
The scam is over. Not because Congress suddenly located some ethics (they have not). Its over because the because pool of money to steal is now government employee money including Congress.
Stealing from the mud covered masses is one thing, not funding government union pensions is OK also. But when the tumor reaches a point where they must steal from Congress to keep it going…
Career politicians stealing from other career politicians is a whole new chapter
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Mish….your integrity is your downfall….surely the government soothsayers will find that pet rock sales pushed GDP in excess of one percent…
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Housing data up by 0.3 percentage points… We had a mild winter and early spring weather. Is this 0.3% really home buyers responding early to their own plans?
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Why do you keep implying that GDP #’s matter? Two simple reasons I continuously say the Fed will raise: (1) pensions have more pull than consumers, and (2) the Fed does not want to be labeled a serial bubble blower, which they won’t be able to stop because stocks are the only game in town for int’l capital.
The talking heads and establishment hacks want people to believe the markets are up after the French elections because Macron edged La Pen and the establishment candidates, THAT LOST, are throwing their support behind Macron. This is pure propaganda. First of all, if these hacks didn’t notice, the establishment lost. Secondly, capital is continuing to flow into stocks because the death of the euro is getting closer – no matter who wins. La Pen will provide a softer landing, just like Trump, because she will minimize the damage that govt is inflicting on society. Macron will give the establishment an excuse not to reform, which will drive the banks and society off the cliff into a cesspool of higher taxes, civil unrest, and a likely war.
Japan is headed in the same direction, which is why their govt will abandon their policy of nonviolence to distract their masses from their blunders.
In this environment, where do you propose the big money put their capital? How much do you think GDP factors into their decision?
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What I did was horribly offensive, so if I’m not banned for life it won’t happen again Mish
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I don’t know what he did, and am not asking, but his words sound sincere to me.
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All this realizing that initial quarterly GDP estimates are more than a 1% off the mark on average, and more than two percent off the mark within two std dev.s.
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While the Fed and government wants us to believe there was a recovery post 2008, it was entirely fictitious. A criminal explosion in debt and a lot of cooking the books to cover over Obama’s incompetence and corruption.
The uber-liberals in NYC are now being penalized for there willingness to go along with the scam. NYC commuter train systems are literally falling apart from neglect, and the giant unnecessary bureaucracy knew about the maintenance neglect the whole time:
This is the uber-liberal NY Times admitting that the army of useless bureaucrats (all of whom make well into six figures, plus pensions, plus benefits, plus plus plus…) knew for years that they were stealing from basic maintenance to fund feel-good projects.
Amtrak has had more 5yr plans to be solvent than the Soviet Union. Its an epic disaster built on lies and tens of billions in subsidies.
Remember Obama the Liar telling us how he was spending $700 billion on shovel ready projects — only to divert that money toward an even bigger bureaucracy instead?
Obama’s massive debt explosion is going to slow economic growth for decades, no matter who is in office. While Obama collects another $400K in “speaking fees” (don’t call it a bribe), voters should plan for an extra hour of commuting time just to get to your job — which won’t give you a raise, won’t pay a pension, and won’t pay benefits.
Voters will not be paid $400K per YEAR never mind for a hour long speech.
That is the reality of the world, not these silly GDP guesses
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“… had not recognized the severity of the problem.”
You know, for all the stupid it would sound, I would still rather he had said the honest words ‘ I now recognize the severity of the problem ‘. However some in position of responsibility rarely admit to something even so simple… and there is an straightforward reason why – they don’t ever plan on being responsible.
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Those 8×8 landscape timbers that are underneath (older) tracks are pressure treated and also covered in tar before being laid down. They do not rot quickly.
The bureaucrat running Amtrak said he “didn’t recognize the severity of the problem”, which is double-speak for he “didn’t even look”.
More on point to the post topic… last year’s GDP number was based on fraud (deferred and ignored basic track maintenance so they could over-pay union dolts and administrative overhead). This year’s GDP number is, being very generous, a wild guess.
Take a wild guess divided by a fraudulent number, and you get a silly debate about GDP growth. Mish is bickering about +/- 0.2% differences, and that is just a delusional level of precision.
The economy is just barely starting to shift from “financial engineering based accounting” (what normal people call fraud) toward honest growth (e.g. Main street growing, with banks acting as intermediaries to that growth).
The reduction in fraudulent GDP isn’t really a contraction — because it was never there in the first place.
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BTW @crysangle, the problems with Amtrak’s track maintenance (or lack of maintenance really) is a lot more than a few rail timbers that should have been replaced:
Again, the uber-liberal NY Times is admitting maintenance was neglected for many years.
Of course, the politicians are blowing smoke and mirrors and making stupid excuses. How would spending $25 billion on yet another tunnel under the Hudson River (a project Amtrak pushed for years) have fixed the neglect at Hoboken train station? It wouldn’t have. Hoboken would still be a mess. How would a $25 billion tunnel under the Hudson have fixed Penn Station? It wouldn’t have. It would have diverted attention and man power away from Penn Station. Nothing would have or is going to fix Penn Station except… fixing Penn Station.
Amtrak officials were so busy pushing a shiny new toy that they neglected basic maintenance for years. Want to guess if they neglected union pay or bureaucrat’s pay the same way?
Want to talk about the disaster that is the Metro subway system in Washington DC? It goes way beyond the track control problems at Union Station — the start of Amtrak’s only profitable route: the train that takes central planners between Washington DC, Philli, New York City, and on to Boston / Harvard School of Government.
Amtrak doesn’t talk about repairs needed at their station in Philadelphia, and they don’t even mention the station in south Boston. Billions in delayed (ignored) maintenance.
Why is Amtrak focused on getting another $25 billion for a new tunnel when they can’t even maintain stations on their only profitable route? Why didn’t he ask for $25 billion to make necessary repairs?
This guy “didn’t recognize the severity of the problem” in Penn Station because he was obsessed with getting taxpayer handouts for a new tunnel.
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“Obama’s massive debt explosion is going to slow economic growth for decades, no matter who is in office.”
Politicians in both parties and Presidents in both parties, are responsible for the mess we are in now. The national debt tripled under Reagan, doubled again under Bush Jr. and doubled again under Obama. It was Cheney who said Reagan proved deficits don’t matter.
If McCain had won in 2008, we would have had similar deficits over the last 8 years.
Neither political party has ANY intention of balancing the federal budget. They pretend they will create a budget that balances 10 years from now, but a lot happens in 10 years, including another recession, which they didn’t include in their calculations. I have seen the game played so many times it is tiresome.
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Only one of those idiots added $11 trillion to the debt without adding a penny to GDP (yes, I saw the official GDP reports; no I don’t think the real economy grew at all, just lots of accounting shennanigans)
That is why Obama is the worst president the country has ever had. Go ahead and make a fool of yourself babbling about racism or whatever snowflake rubbish. The media would never have tolerated Obama’s incompetence if he were white — they are the true racists
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And that illusive recession just keeps on taunting the doomer bloggers,,,,
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There will be no recession unless, for whatever reason, the Fed wants one.
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I remember a nightime flight once, the plane came in steep… or maybe not, maybe there was a downdraft… or maybe not, maybe it was pitched down in an updraft… or maybe not… and I am looking down the isle and my senses are telling me we are pointed near verticle, then I realise I don’t know up or down anymore and I am wondering wtf is going on, the look on the face of other passengers reads the same story. That is all we are, passengers on an increasingly complex machine that only a few (think they) know how to fly, trusting it will get us to where we thought it would go.
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Hope you are not reading this from the departure lounge, ominous phrase ‘departure lounge’… see what happens when you write ‘doomer’ ?
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@Professorlocknload … the Fed is no longer relevant. They (all central banks) have lost credibility. Central banks were never pulling the strings in the first place.
Unless you want to claim the ECB forced the EU to fall apart, and Bernanke deliberately caused the 2008 credit bubble to pop, and Bank of Japan has been forcibly preventing Japan’s economy (and government) from recovering since 1989?
The central planners have put on a great show — but they were never really controlling anything.
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The Business Cycle has not been repealed.
Of course, if you want to say it is different now …your funeral.
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Slow growth of 1-2% in the US for the foreseeable future. No big growth like Trump wants. No recession, as many predict. The Fed will hike once or twice a year for the next few years. Its going to be “steady as she goes”. Kind of boring actually.
The best growth will be in Asia and Emerging Markets.
Oil will remain in the $45-$60 range for years.
This all assumes no black swan event.
Better growth will begin in roughly 5 years. This is when autonomous vehicles will begin having a big positive impact on efficiency.
The next President will be the beneficiary of a strong economy.
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Think you are overstating the impact of self driving vehicles (there will be some in isolated applications, but nothing game changing).
Otherwise, spot on. The fraudulent GDP that wasn’t really there last year has to be written off, either in one giant recession or gradually over several years… The folks in Washington are going to push like #%ll for the later scenario: democrats don’t want to admit Obama was a fraud, and republicans don’t want to saddle Trump with Obama’s recession.
So it will be quite boring for several years: 4-5% actual growth, minus 3-4% write-offs of past fraud… yielding 1-2% reported growth.
Trump won’t get a massive tax reduction, because the government can’t afford it. Obamacare will get repealed, because the government can’t afford it. Government headcount will fall from attrition, because government can’t afford it. And state pensions will be forced to admit they were ponzi schemes all along. Government employees will be forced to chose between job security or market pay levels, but not both.
And the next president will be the beneficiary of the strong economy that results.
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My guess 1.1 GDP but the fact is this number means little, It may be time to dust off the term “the new normal” a reference created after the 2008 financial crisis to describe an economy mired in slow growth. The term has not been used much lately but has become the reality we face. Something that should make people concerned is that grinding stagflation is on the horizon.
A strong case can be made that the economy is about to stall under strong headwinds as the burden of past debts and future promises made to those retiring and unable to find good jobs begins to weigh heavily upon society. The article below delves into the idea of slow growth coupled with stagflation.
http://brucewilds.blogspot.com/2017/04/expect-slow-growth-coupled-with.html
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