With 10 days left within the Third Quarter, evidently plenty of people have been obsessing in regards to the varied GDP Now forecasts. The pondering is the info will affect how the FOMC will decide whether or not we get extra price will increase or if it’s greater for longer, and even doubtlessly reflecting a 2024 recession and Fed price cuts.
Now Casting was first developed by the Federal Reserve Financial institution of Atlanta to supply a real-time estimate of GDP development for the present quarter. It makes use of (13 or so) inputs1 to extrapolate a tough approximation of financial development. The NY Fed subsequently added its version, as did different regional Fed banks.
Whereas these varied Now Casting websites are helpful as thought workouts, we run the chance of taking them too actually. The outcomes from these vary from being pretty correct, often being off a little bit to being wildly mistaken.
That is the character of the beast.
As we progress deeper into the three-month quarter, an increasing number of information turns into accessible. As GDP Now updates its mannequin with the most recent information, it turns into extra correct. By the point the quarter ends, GDP Now’s fairly good — the typical error is about 0.5% factors, plus or minus.
Nonetheless, the completely different methodologies utilized by every Fed financial institution result in surprisingly completely different outcomes.
Because the charts up prime present, the NY Fed is round 2.25%, versus the Atlanta Fed’s 5%. In case you are a betting particular person, you’ll assume Q3 GDP is someplace in between.
I discover these to be helpful fashions however should always remind myself that they’re merely tough approximations of the BEA GDP, which itself is a tough approximation of the US economic system. The error vary might be massive, particularly early in the quarter, or when an financial shock happens, reminiscent of early within the 2020 Pandemic.
Take all of those with a grain of salt…
GDP Update: -52.8% (June 2, 2020)
Cherry Picking Your Favorite GDP Forecast (Could 18, 2016)
Atlanta Fed GDPNow for 2016 Q2 (LOL) (Could 18, 2016)
NY Fed NowCast
Introducing the New York Fed Staff Nowcast
NY Fed, April 12, 2016
GDPNow: A Model for GDP ‘Nowcasting’
FRB Atlanta Working Paper 2014-7
By Patrick C. Higgins
Federal Reserve Financial institution of Atlanta, July 1, 2014
1. Knowledge inputs embody retail gross sales, industrial manufacturing, actual private earnings, actual private consumption expenditures, internet exports, and extra.