The Federal Reserve Bank of New York released its Nowcast forecast today. The Atlanta Fed GDPNow forecast was updated on July 14 and again on July 19.
The GDPNow forecast is up from July 14, but way lower from the preceding cast. Meanwhile, the Nowcast inched back above the two percent mark for the first time since June 9.
The overall tendency at this point is convergence at or slightly above two percent.
GDPNow Latest forecast: 2.5 percent — July 19, 2017
“The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2017 is 2.5 percent on July 19, up from 2.4 percent on July 14. The forecast of second-quarter real residential investment growth increased from -1.6 percent to -0.6 percent after this morning’s new residential construction report from the U.S. Census Bureau.”
FRBNY Nowcast Latest forecast: 2.0 percent — July 21, 2017
GDPNow Contributions to GDP Estimates
Comments
I have been in contact with Pat Higgins, the creator of GDPNow several times in the past week over various issues.
At the top of the heap is the GDPNow forecast for nearly a two percent contribution from Personal Consumption Expenditures (PCE) despite the fact that retail sales are down and things like food stamps will not change much.
As has always been the case, Pat was generous with his time in explaining the model.
Most of the numbers in his contribution forecast seem to make sense. The two wildcards on my mind are CIPI and PCE.
CIPI is “change in private inventories.” I seriously question the value of inventory on auto dealers’ (new and used) lots. In addition, inflation is headed lower overall, if one accepts numbers from the BLS.
Perhaps my simple model is too simple. I am going to play around a bit with PCE to see what I can come up with.
At the beginning of the quarter, I was sure the initial GDPNow forecast was wildly off base. Something on the order of two percent is at least in the ball park.
The more I study this, the more everything seems like one big crap shoot, especially with massive revisions from the BEA and commerce department out of the blue on top of questionable deflators of PCE inflation that seldom match CPI inflation.
Mike “Mish” Shedlock
I agree that most of this is a crap shoot. That’s why I’m glad that you put the effort into it, and not me!
I still am targeting 1% US GDP for the foreseeable future.
Though I admit, I have been a bit surprised by Canada’s 3.5% growth lately, as I expected Canadian GDP at around 2-3% going forward. I expect higher growth levels in your Northern neighbour for a few macro reasons (they encourage a higher level of immigration of skilled talent, and they are doing a better job of promoting innovation in their economy).
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Since this interests you (doesn’t interest me) You’d be better served watching commodity prices in CAD. Canada will struggle the next quarter or so as energy in CAD has gotten smoked, and the increase in mining prices have been taken away by the higher CAD. Since USD is the reference for pretty much everything traded, the US doesn’t get the benefit of the market moving their currency to offset this (fair argument that it does by the commodity price itself – ‘nherently built into commodity price’ -but that adds one more layer of complication to interpreting the true picture) . Aussie is a perfect example, commodity prices get crushed – AUD gets crushed, revenue looks the same. All looks good even though it ain’t. That’s why the AUD is so volatile. Imagine if it was calculated back into USD, Aussie GDP would be all over the map.
Fortunately for the U.S. it is a much more diversified economy than either Aus/Can.
Immigration of skilled talent ain’t the reason for much of nothin’ other than supporting political gobbledygook. These are resource producing countries, one need not focus on much more than the big picture.
…and the gov/CB don’t do none of dis for ’em, da free market does it all for ’em.
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Again, it interests me only so far as it is a regular theme on the blog that I have an opinion on. Also, articles regarding Sean Spicer don’t interest me in the least, and I don’t even read them (I only have so much time, and I won’t waste it on things like that.)
I do take a macro approach to most things economic.
For example, as you point out, there are lots of micro things that affect the value of the Canadian Dollar; chief among them, the price of oil. Recently, the C$ went up as well because of strong economic growth (3.5%) and the resultant interest rate increase from the Bank of Canada.
However, I consider that all short term noise, which I mostly ignore, unless I am personally affected by it. The value of any currency will be dictated in the long run by GDP vs amount of that currency (I admit, an over-simplification, but it works for me).
As far as Canada goes, even though micro factors like the price of oil will affect it’s economy in the short term, I look at the macro factors and the long term. I believe the major macro factors are: the % of the population that is working and the skill sets of those workers. (again, I am over-simplifying for the purpose of brevity). Canada’s participation rate in the work force is quite a bit higher than in the US.
And since Canada encourages both the education of it’s citizens, as well as a fairly significant level of immigration of skilled workers, I expect its’ economy to outshine that of the US, no matter how diversified the US is. Canadian businesses also have a big advantage since they don’t have to pay for health insurance premiums for their employees directly as many US businesses do.
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Another simple macro model that introduces demographics
https://econimica.blogspot.pt/2017/07/federal-reserve-interest-rate-policy.html
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Excellent article Crys. Very similar to my own views on demographics. I think in the long run, the combination of demographics (ie how many people are working age and actually working, vs how many are retired and not working) and the skill levels of those workers (since jobs of the future require higher skills) are the primary indicators of the economic growth of any country.
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It is an interesting look at the bigger picture, and demonstrates quite well the direction finance and society are taking. The question of economic direction and expansion will always be subjective though. What is an “increased economy”? More people spending more time doing things, or more free time because of economy by efficiency, or people owning more material products, or easier access to those products, gdp/capita or total gdp or total capita, or greater wellbeing and happiness, or just a nice realm or nation to admire for its achievements, etc.?
So people will always argue/debate how events stand, where they are going, where they should be going.
Take innovation, it skyrockets with increased urban reality, and for quite obvious reasons. At the same time though increased political power and disconnection from rural life, as examples, will create a mindset and culture that is distinct, and with an increased propensity for “mischief”, not necessarily because urbanites are worse people, but because they have a greater leverage at hand. What happens when they over-extend or miscalculate? Look at the Roman empire, with its failure such ‘simple’ technology as concrete was erased for several hundred years. And yet here we are.
So in all of that there is trial and error, and each person will have their idea of how life should be. Progress for progress sake does not convince me, especially when it is forced, but competition need not leave others behind either – no one is going anywhere and there is plenty of space for some to succeed more, and some less so but not as a consequence, if there is respect. Ideally it is each to their ability, where opportunity is open, restriction minimal, and the citizen is protected from inevitable monopolies that will occur, the ultimate one being the use of force by his own government. Socialism is a negative presence to my view, neo-liberalism as well, I dislike the foundation of both – instead I think the whole structure has to shift into a new kind of understanding that moves beyond the traditional clichés of power but retains the history and identity of ordinary people as well as allowing a much more decentralised world of endeavour. There are pitfalls everywhere, to change/to not change, but certainly tomorrow will be slightly different than today, and certainly some things will not change over centuries. I don’t pretend to have an answer as to ‘how it should all be ‘, just my ideas and a sense of how certain things ‘should not be’, out of ethic, or moral, or close experience, because all must return to the sum of the welcome diversity of people’s actions as well as their everyday reality, and there we encounter not just background or culture, but education, law, politics, ideologies, and religion or spiritual understandings. No one is going to decide all of those well for another, which is why I tend to always call for minimal management and imposition, as people must find themselves for there to be any depth of meaning and sincerity in their lives. End of speech. 🙂 .
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Well said Crys.
For the sake of this blog and it’s focus on “economic growth” as a sign of success, I provide my macro approach for estimating long term economic growth. (ie total economic output of a country, which is linked to the % of the population that is actually working multiplied by the productivity of each worker, which is linked to their level of skills).
Success, however is very subjective.
Personally, I am far more concerned with the “quality of life” as a measure of success. I feel truly blessed to live in a country that I believe offers a wonderful “quality of life”. There are fewer than 10 of these countries in the world, in my subjective opinion. There may be more as I have not yet been everywhere, but I’m comfortable with my personal list.
My country provided me with “opportunity” to succeed by providing a good environment for almost anyone with a work ethic and abilities. It does not provide guarantees.
It also provides that opportunity by emphasizing the ability to acquire an education for a reasonable cost, and by providing health care for all.
I do believe (unlike many on this site) that life requires a balanced approach. There is a role for government, just as there is a role for the private sector. Neither is the answer to every problem. I am glad that my government is involved in areas such as health and education in my country as I consider this approach the best cost/benefit. To some on this sight, that is sacrilege. To me, those people are going through life with blinders on, refusing to even look at all possibilities. That is their loss.
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driven by what? half a trillion in new taxes,half a trillion in new gov’t borrowing.half a trillion in fresh gov’t dept!Printing and borrowing tens of trillions YOY to drive 1-2 growth (if that)shows how completely desperate and absurd (laughably so)things continue to be,and obviously trump has zero interest in at least tryin to right this ship,he’s gonna do exactly what Obama did,tax,borrow print,rinse n repeat
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Mish,
What is your forecast? Still 1%?
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For now – yes
It may change after I try a new set of calculations
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All that matters is debt (creation).
Q1 GDP grew (nominal) $158 billion.
Household debt grew $149 billion Q1.
Throw in corporate debt … local / state / federal government debt … and leasing / rent to own in Q1?
The debt hamster is going full tilt on his wheel.
How long till it keels over?
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I agree.
Each new dollar of debt is producing only a few PENNIES worth of nominal GDP “growth”, and is moving towards ZERO.
Completely unsustainable.
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I agree that debt levels are too high, especially since much of that debt is unproductive. I like to divide debt into two types:
Productive: used for business or personal investment, to actually produce more wealth; more of this is good
Unproductive: wasted on unproductive things (like a vacation)
The level of unproductive debt is slowing economic growth. I don’t see an economic crash coming though, simply because of debt. It’s just slowing things down.
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How’ that song go? I think we’re turning Japanese….
….
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I agree. The US is following Japan down the same road. Both are trying to grow their economies through central bank actions, while at the same time, limiting immigration. As a result, both countries face a shrinking number of workers trying to support an increasing number of retirees. Shortages of skilled workers and increasing numbers of unfilled jobs are the result. Japan can probably grow at around 1/2% and the US at 1%.
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I agree that debt levels are too high, I tend to always call for minimal management and imposition, as people must find themselves for there to be any depth of meaning and sincerity in their lives. End of speech…
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