The volatility of GDPNow vs Nowcast is once again on display in recent weeks. Whereas Nowcast barely moves week to week, a chart of GDPNow shows significantly more volatility.

GDPNow forecast: 2.5 percent — October 6, 2017

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2017 is 2.5 percent on October 6, down from 2.8 percent on October 5. The forecasts of third-quarter real consumer spending growth and third-quarter real private fixed investment growth declined from 2.5 percent and 1.8 percent, respectively, to 2.2 percent and 0.9 percent, respectively, after this morning’s employment report from the U.S. Bureau of Labor Statistics. The model’s estimate of the dynamic factor for September—normalized to have mean 0 and standard deviation 1 and used to forecast the yet-to-be released monthly GDP source data—fell from 1.53 to 0.18 after the report.

Nowcast forecast: 1.5 percent — October 6, 2017

Week Ending October 6, 2017: Highlights

  • The New York Fed Staff Nowcast stands at 1.5% for 2017:Q3 and 2.5% for 2017:Q4.
  • News from this week’s data releases left the nowcast for Q3 broadly unchanged and increased the nowcast for Q4 by 0.5 percentage point.
  • Positive surprises from the ISM surveys outweighed negative surprises from employment data.

The charts show a huge reaction to the hurricane on Nowcast but GDPNow had been generally sinking since its initial forecast for the quarter.

Then, in response to construction, autos, and ISM GDPNow jumped far more than Nowcast.

Once again there is a full percentage point gap between the estimates. Mid-week the gap was about 1.3 percentage points.

Hurricane impacts, especially change in private inventories (CIPI) destruction due to flooding on top of wildly changing construction reports makes GDP estimates for third quarter very difficult.

Mike “Mish” Shedlock