The Nowcast is at 2.1%. Inquiring minds may be wondering what Hurricanes Harvey and Irma will do to their models. First, let’s review the latest forecasts.
GDPNow Forecast: 3.0 Percent — September 8, 2017
The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2017 is 3.0 percent on September 8, up from 2.9 percent on September 6. The forecast of the contribution of inventory investment to third-quarter real GDP growth increased from 0.87 percentage points to 0.94 percentage points after this morning’s wholesale trade report from the U.S. Census Bureau.
FRBNY Nowcast Forecast: 2.1 Percent — September 8, 2017
- The New York Fed Staff Nowcast stands at 2.1% for 2017:Q3 and 2.6% for 2017:Q4.
- News from this week’s data releases decreased the nowcasts for both quarters by 0.1 percentage point.
- Negative news from lower than expected imports and exports data accounted for most of the decrease.
When Will Hurricane Adjustments Take Place?
The answer is no adjustments per se will be made to the models.
Here is a Q&A between Pat Higgins, creator of GDPNow and me.
Mish Question to Pat Higgins
Can I safely presume your model will not change because of hurricanes? Rather the data that comes in will impact the model, whatever it may be.
Do you have a personal opinion that you can share about the likely impacts of these hurricanes?
Pat Higgins Reply to Mish
Hi Mish – your presumption is correct. GDPNow will only be impacted by the hurricanes to the extent they impact monthly data used by the model. And no adjustments are being made to the model’s forecasts of the yet-to-be released source data because of the hurricanes.
On your second question, I’m afraid I can’t be of much help since the impact of weather-related events on GDP is outside of the scope of GDPNow.
GDP Will Take a Hit
Without a doubt, third quarter GDP will take a hit. Businesses were closed and people lost their jobs, even if only temporary that a lot of economic activity that did not take place.
Will models will exaggerate the effect by carrying the results too far into the future? That’s possible, but it’s also possible the economy was peaking right as the hurricanes hit.
As I stated in a previous article, the Hurricanes give the Fed and president Tump perfect scapegoats to blame if a recession hits. A recession was long overdue anyway.
These cross currents, as well as artificial increases in demand for automobiles wiped out in Hurricane Harvey, are all in play.
For now, it’s best just to watch the data over the next few months, while also watching how the GDP models react to it.
The Fed will likely start balance sheet reduction in September. I doubt balance sheet reduction gets too far. I also think the end of Fed rate hikes is in sight if not already in the rear view mirror.
Mike “Mish” Shedlock