Economic Boom Thesis Nothing More Than a Hurricane-Related Mirage

On Friday, both GDPNow and Nowcast updated their models. The former estimates 1st-qtr GDP at 3.2%, the latter at 3.1%.

It's been a wild ride for the GDPNow Model, not so for Nowcast.

GDPNow Forecast: 3.2 Percent - February 16, 2018

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2018 is 3.2 percent on February 16, unchanged from February 14. The nowcast of first-quarter real residential investment growth fell from -0.6 percent to -1.7 percent on February 15 after the industrial production release from the Federal Reserve Board of Governors and the Producer Price Index release from the U.S. Bureau of Labor Statistics. The nowcast increased to 0.6 percent after this morning's new residential construction release from the U.S. Census Bureau.

Nowcast Forecast: 3.1 Percent - February 16, 2018

  • The New York Fed Staff Nowcast for 2018:Q1 stands at 3.1%.
  • News from this week's data releases decreased the nowcast by 0.2 percentage point.
  • Positive surprises from housing starts and building permits only partly offset negative surprises from retail sales, industrial production, and capacity utilization.

GDPNow Evolution

Let's switch to a portion of GDPNow's downloadable spreadsheet for further details.

Change in Private Inventories

Unlike Nowcast, GDPNow estimates the Change in Private Inventories (CIPI).

Overall, GDP is at 3.2%, down from 5.4% on February 1. GDPNow's real final sales estimate stands at 2.0%, down from 4.1% on February 1.

Final sales is the true bottom line measure, because additions and subtractions to inventory net out over time.

If we get another bad retail sales report, as I suspect, that 2% estimate will shrink even further.

Boom Was a Mirage

The hype we have seen about the strengthening economy now appears to be nothing but a hurricane-related mirage, something that I suggested would happen months ago.

For a look at why the GDPNow model went haywire, please see Pat Higgins Explains the Wild 5.4% GDPNow Forecast Made February 1.

The problem with models is that they do not think.

Mike "Mish" Shedlock


The NYC is booming because of frothy asset bubbles. Exactly the opposite happens when these bubbles pop. It is unhealthy growth. Now that preliminary data is coming out of the effect of higher rates on spending in areas like housing, autos it is appears the economy is grinding to a halt. When that information gets through to the greedy idiots on Wall Street, what happened two weeks ago will just be a crack in the road.


The economy in the NYC region and in Eastern Massachusetts is booming at a sustained rate not seen in modern history. Stores are jam packed any night of the week as are restaurants. The thing is that $100,000 a year income per person is the new normal in this area. It very much is an employees market and I can't think of any white collar job in Manhattan that pays less than six figures


"Yes, it IS the government's role to stimulate the economy." The economy moves in cycles of expansion and contraction, regardless what the government does. It is not the government's role to stimulate the economy. A recession clears out excesses and pent up demand from delaying spending during a recession, causes it own stimulation of the economy. The 1921 recession had the greatest negative quarter of GDP on record, yet the economy rebounded sharply on its own, without help from the government. Hoover intervened in the next recession and it is now remembered as the start of the period known as the Great Depression.


Every boom is a mirage, as 100% end in a bust.