Nowcast, GDPNow Diverge Widely Again: What Happened?

After converging, the gap between the GDPNow Model forecast and the FRBNY Nowcast model has widened again.

by Mish

Both models reported today. GDPNow says 2.6% while Nowcast dips to 1.8%.

Nowcast also released its projection for 1st quarter of 2017. That forecast stands at 1.7%.

GDPNow Latest Forecast: 2.6 Percent — December 16, 2016

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2016 is 2.6 percent on December 16, up from 2.4 percent on December 14. The forecast of fourth-quarter real personal consumption expenditures growth increased from 2.1 percent to 2.4 percent after yesterday’s Consumer Price Index release from the U.S. Bureau of Labor Statistics.

GDPNow Contribution History

FRBNY Nowcast December 16, 2016 Highlights

  • The FRBNY Staff Nowcast stands at 1.8% for 2016:Q4 and 1.7% for 2017:Q1.
  • This week’s news had a negative effect on the nowcast, pushing down the Q4 and Q1 measures by about 0.7 percentage point each.
  • The largest negative contributions came from capacity utilization and industrial production data as well as housing data, which were only partly offset by a positive contribution from survey data.

FRNBY 4th Quarter Nowcast

As of December 9, the Nowcast stood at 2.48%. Nowcast was blacked out last week because of the FOMC meeting this week. GDPNow had no such blackout.

On December 7, I gave a Mishcast of Nowcast, GDPNow for December 9, 2016.

Given advance numbers, I expect no change in GDPNow.
I also take a stab that factory numbers and the trade deficit numbers lower Nowcast by 0.1 percentage points. Nowcast is currently at 2.7%.
If my guess is correct, the models will converge at 2.6% on Friday when both report.

There was no report on December 9, but we can check my prediction now.

  • GDPNow did stay flat at 2.6%
  • Nowcast dropped 0.2 percentage points vs. my call of 0.1%
  • On December 9 the models stood at 2.6% vs. 2.5%

For all practical purposes, the models converged. I made no Mishcast of the casts this week because I know from experience the models do not see housing or industrial production in the same way and I have not figured out how to gauge the results.

FRNBY 4th Quarter Nowcast Detail

What Happened?

  1. Housing subtracted .209 percentage points from Nowcast
  2. Housing subtracted nothing from GDPNow
  3. Retail trade and PPI subtracted .05 percentage points from Nowcast
  4. Industrial production and Capacity Utilization subtracted 0.415 from Nowcast
  5. Retail trade, Industrial production, PPI subtracted 0.2 percentage points from GDPNow
  6. CPI did nothing to Nowcast
  7. CPI added 0.2 percentage point to GDPNow

Net Total of Housing, IP, CU, Retail Trade, PPI, CPI

  • GDPNow: +0.00
  • Nowcast: -0.674

Gaming these reports is not exactly easy. History suggests taking the “under” when the discrepancy is this wide.

I also expect auto sales to weaken, housing to weaken, and Christmas sales to come in under projections. Nonetheless, let’s assume 1.8% is correct and third quarter GDP is not revised. This year’s GDP results would look like this.

The Fed is going to hike 3 times into that, with housing slowing and mortgage rates rising?

I don’t think so.

Mike “Mish” Shedlock

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