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Here We Go Again: GDPNow Projects 4.1% GDP

At the start of every quarter the Atlanta Fed model typically projects wildly high GDP estimates that drop over time.

The GDPNow Initial projection for second-quarter GDP is a seemingly high 4.1%.

The initial GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2018 is 4.1 percent on April 30. The advance estimate of first-quarter real GDP growth released by the U.S. Bureau of Economic Analysis on April 27 was 2.3 percent, 0.3 percentage points above the final GDPNow model nowcast released on the previous day.

Today's update incorporates modifications to GDPNow's dynamic factor model as described here. [Mish Note: the dynamic factor model is for economic geeks only].

The dynamic factor is used to forecast yet-to-be released monthly GDP source data. The modifications to the factor model are intended to partially dampen some of the volatility in GDPNow forecasts in the early part of each month.

Nowcast

Unlike GDPNow, the Federal Reserve Bank of New York (FRBNY) Nowcast projects two quarters simultaneously.

For the past eight weeks, the Nowcast model varied between 2.8% and 3.2%. Compare to the the first quarter GDPNow.

GDPNow vs Nowcast for 2018 Q1

Dampen Volatility?

The latest GDPNow dynamic model modification to dampen volatility does not appear to have succeeded. Then again, perhaps we see 4% GDP.

Once again my typical mental wager on the GDPNOw initial forecast is as follows: "I'll take the under, way under".

Mike "Mish" Shedlock

From the Atlanta fed gdpnow website:

" GDPNow ... is best viewed as a running estimate of real GDP growth based on AVAILABLE DATA for the current measured quarter. "

" As more monthly source data becomes available, the GDPNow forecast for a particular quarter evolves and generally becomes MORE ACCURATE. That said, the forecasting error can still be SUBSTANTIAL just prior to the “advance” GDP estimate release. "

I think that, If one does not like how the model works, one should just ignore it.

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