For the first quarter, the initial GDPNow forecast was 2.3% on January 30, 2017. The GDPNow forecast spiked quickly to 3.4% then crashed to a final estimate of 0.2% on April 27.
For comparison purposes, Nowcast was at 2.9% on February 3, the closest date to the initial GDPNow forecast. The final Nowcast estimate was 2.7%.
The advance GDP estimate from the BEA was 0.7%. Thus the Nowcast was two full percentage points too high. In contrast, GDPNow was in the ballpark but 0.5 percentage points too low.
Massive Divergence Again
Using May 1 as the starting point for second-quarter estimates, GDPNow’s initial forecast is 4.3% vs Nowcast at 1.8%.
GDPNow seems wildly high, but it was in the same spot in the first quarter, predicting as much as 3.4% growth.
GDPNow Latest forecast: 4.2% — May 5, 2017
The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2017 is 4.2 percent on May 4, down from 4.3 percent on May 1. The forecast for second-quarter real consumer spending growth declined from 3.2 percent to 3.0 percent after yesterday’s light vehicle sales release from the U.S. Bureau of Economic Analysis. The forecast of the contribution of inventory investment to second-quarter growth increased from 0.97 percentage points to 1.14 percentage points after this morning’s manufacturing report from the U.S. Census Bureau.
FRBNY Nowcast Latest forecast: 1.8% — May 5, 2017
May 5, Nowcast Highlights
- The FRBNY Staff Nowcast stands at 1.8% for 2017:Q2.
- News from this week’s data releases reduced the nowcast for Q2 by 0.5 percentage point.
- Negative surprises from the ISM manufacturing survey as well as import and export data were only partly offset by positive surprises from the employment report.
Once again, Nowcast overly relies on soft ISM instead data instead of hard auto numbers. At least the ISM numbers went in the same direction as autos in this report.
Construction spending is the real wild card this quarter.
In Investigating Weather-Related Effects on Construction Spending I posted this chart that explains the jump in the initial GDPNow forecast.
This was a strong report and even stronger than it looks at the first glance. However, I caution everyone to not read too much into this strength.
December was unusually cold. January was unusually warm as was February. Seasonal adjustments do not factor in weather.
Second Warmest February in 123 Years!
Please consider Assessing the U.S. Climate in February 2017.
During February, the average contiguous U.S. temperature was 41.2°F, 7.3°F above the 20th century average. This ranked as the second warmest February in the 123-year period of record. Nearly one-quarter of the U.S. was record warm in February. Only February 1954 was warmer for the nation at 41.4°F. Between December 2016 and February 2017, the average temperature across the contiguous U.S. was 35.9°F, 3.7°F above average, the sixth warmest winter on record.
Estimate Way High
My comment on the construction data was “Before anyone gets too giddy over these numbers, bear in mind very unusual seasonality factors. Builders build when the weather permits, and the weather was very cooperative this Winter.”
GDPnow Initial and Final Forecasts vs Actual
I created the above chart from the “tracking archives” spreadsheet from GDPNow downloadable data. I added a few columns (Initial, Final Actual) to the sheet.
My friends at Advisor Perspectives helped with data labels.
In the above chart, Actual means the Advance GDP estimate, not the final revised GDP number.
GDPNow Track Record
- First-quarter GDP estimates ended with Nowcast 2.5 percentage points higher than GDPNow.
- Initial estimates for second-quarter GDP have GDPNow 2.4 percentage points higher than Nowcast.
- That is an amazing net swing of 4.9 percentage points.
Think Outside the Model
Think outside the models because once again at least one of these forecasts is wildly off the mark.
For further discussion, please see Tracking GDPNow Forecasts vs. Reality: What About that Initial 2nd Quarter Estimate?
Mike “Mish” Shedlock