GDPNow Estimate Tumbles on Weak Retail Sales
The yellow highlight shows the half-point drop on January 16.
Analysts, including me, generally concluded sales were solid, rising 0.3% in December, yet the GDPNow forecast fell.
Q. Why the forecast decline?
A. The model expected better.
It's not the report that matters to these forecasts, but rather how well the forecast dose vs. what the model expected.
Housing and Industrial Production Balance Out
On January 17, I noted housing starts rose to a 13-year high.
I would have expected the GDPNow model to surge but nothing happened because Industrial Production balanced things out.
"The drop for utilities resulted from a large decrease in demand for heating, as unseasonably warm weather in December followed unseasonably cold weather in November," according to the report.
It was that unseasonably warm weather in December that totally skewed the Housing report.
In the Midwest region, not-adjusted single-family housing starts rose from 9,200 to 9,600. This was reported at a seasonally-adjusted annualized rate of 180,000 and a whopping rise of 56.5% from November.
For more details, please see Housing Starts Surge to a 13-Year High Thanks to Massive Seasonal Adjustments
Word About Models
Models do not take weather or any other one-time issues into consideration.
Looking ahead, the GDPNow model is likely going to make some housing forecast assumptions that will not happen. Thus, from where things stand now, the model is likely on the high side.
Mike "Mish" Shedlock