Cory's Insights – Wed 16 Dec, 2015

A check in on GDPNow

I check the Atlanta Fed forecasting site GDPNow at least a couple times a month. For those of you who do not know what the GDPNow site is all about here is a brief explanation…

The Atlanta Fed GDPNow model mimics the methods used by the BEA to estimate real GDP growth. The GDPNow forecast is constructed by aggregating statistical model forecasts of 13 subcomponents that comprise GDP. Other private forecasters use similar approaches to “nowcast” GDP growth. However, these forecasts are not updated more than once a month or quarter, are not publicly available, or do not have forecasts of the subcomponents of GDP that add “color” to the top-line number. The Atlanta Fed GDPNow model fills these three voids.

While not always accurate by the end of the quarter the forecast is usually very close to the reported numbers. What I find interesting is watching the variations/volatility as we progress through the three month period.

Throughout Q4 the model has been volatile but most notably it has been volatile in a higher range than the prior quarters this year. This quarter is also the closest that the GDPNow model has been to the Blue Chip consensus (which is always more bullish). Overall Q4 2015 is looking to be a strong close to the year.

We do need to consider that the holiday shopping season really helps consumption in the US and lowers inventories that have been built up over the year. If this trend can hold through the release of the Q4 GDP number and into 2016 the Fed might be talking about another rate hike sooner than most expect (assuming they go through with it in a couple hours) .

Here’s the up to date chart and the Atlanta Fed’s explanation.

Evolution of Atlanta Fed GDPNow real GDP forecast

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2015 is 1.9 percent on December 11, up from 1.5 percent on December 4. The forecast for fourth-quarter real consumer spending growth ticked up from 2.2 percent to 2.4 percent after this morning’s retail sales report from the U.S. Census Bureau. The forecast for the contribution of inventory investment to fourth-quarter real GDP growth increased from -0.6 percentage point to -0.4 percentage point after Wednesday’s wholesale trade report and this morning’s retail inventories release (both from the Census Bureau).