GDPNow Forecast Dips to 0.9%: Divergence with Nowcast Hits 2.3 Percentage Points – Why?

The Fed hiked today, smack in the face of an Atlanta Fed GDPNow Model forecast of 0.9 percent.

by Mish

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2017 is 0.9 percent on March 15, down from 1.2 percent on March 8. The GDP growth forecast declined 0.3 percentage points on Friday when the February estimate of the model’s latent dynamic factor used to forecast yet-to-be-released GDP source data declined after the employment situation release from the U.S. Bureau of Labor Statistics (BLS). The forecast for first-quarter real consumer spending growth inched down from 1.6 percent to 1.5 percent after this morning’s retail sales report from the U.S. Census Bureau and the Consumer Price Index release from the BLS.

FRBNY Nowcast March 10, 2017

The Federal Reserve Bank of New York Nowcast Model for first quarter GDP looks like this:

GDPNow vs. Nowcast Synopsis

  • From February 3 to March 10 the FRBNY Nowcast Model rose from 2.9% to 3.2%
  • From February 1 to March 10 the GDPNow Model fell from 3.4% to 0.9%
  • Both models use many of the same data inputs

Nowcast Detail

GDPNow Detail

Comparison Details

Neither report had a significant movement on February 24. Let’s start there for a closer look.

  1. On March 1, Construction spending took 0.7 percentage points off GDPNow but only 0.046 percentage points off Nowcast.
  2. On March 2, light vehicle sales took 0.3 percentage points off GDPNow. Nowcast did not factor in light vehicles sales.
  3. On March 6, the manufacturing report took 0.2 percentage points off GDPNow. The same inventory report (different name) added 0.031 percentage points to Nowcast.
  4. On March 7, the import-export trade report did nothing for GDPNow. The import-export trade report added a net 0.032 to Nowcast.
  5. On March 10, the jobs report subtracted 0.3 percentage points from GDPNow. The Jobs report added 0.003 (nothing) to Nowcast.

Comparison Summary

  • March 1, 2, 6, and 7 reports subtracted 1.2 percentage points from GDPNow.
  • March 1, 2, 6, and 7 reports added 0.017 percentage points to Nowcast.
  • The big difference is in how the models treat (or don’t treat at all), construction spending and light vehicle sales.
  • The jobs report (an additional 0.3 percentage point decline for GDPNow) may be related to a model change.

I exchanged emails with Pat Higgins, the creator of GDPNow earlier today regarding the jobs report. He replied:

Hi Mish,
I can’t say very much because of the FOMC blackout (see https://www.federalreserve.gov/monetarypolicy/files/FOMC_ExtCommunicationStaff.pdf ). The February 2017 value of the model’s dynamic factor was revised down from 1.09 after the last GDPNow update on February 8th and to 0.62 today. The factor has mean 0 and standard deviation 1. I may be able to provide a little more insight after the blackout ends on Friday.
Pat

I suspect at least one of these models is likely to be revisited after the next GDP release. Last quarter I leaned towards the Nowcast forecast. This quarter I think GDPNow will be much closer.

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