GDP Nowcast Update – June 3, 2016

Hidden in the shadows behind Friday’s jobs report was the latest GDP ‘Nowcast’ from the NY FED.   And a new entrant for us in the prediction game:  the Atlanta FED and their ‘GDPNow’ forecast.  We now have great windows into the current thoughts of two federal reserve banks and their influential Presidents, members of the FOMC.  Fabulous!

Follow this link to the original post on GDP Nowcast:

https://www.newyorkfed.org/research/policy/nowcast

And here’s a link to the Atlanta FED ‘GDPNow’ forecast:

https://www.frbatlanta.org/cqer/research/gdpnow.aspx?panel=1


Why you should care:  The Nowcast and GDPNow are both a “sneak preview” into the thoughts of the FED and a highly probably future.    Economists John Faust and Jon Wright sum it us this way, “…by mirroring key elements of the data construction machinery of the Bureau of Economic Analysis, the Fed staff forms a relatively precise estimate of what BEA will announce for the previous quarter’s GDP even before it is announced.”

Excellent.  This is what we’re looking for!

(If you want to dig deeper into this topic, there are two other FED models you might consider reviewing … but I’m not a big fan.  Why?  Neither make a precise numeric prediction…both show possible ranges of stochastic outcomes.  Too imprecise for me.  And the PRISM forecast is not real-time.  But here they are if you’re interested:

https://www.minneapolisfed.org/economy/mf-var-forecast/mfvar-forecast-june-2016

https://www.philadelphiafed.org/research-and-data/real-time-center/PRISM/)


Taking action:    As I’m certain the FED uses the Nowcast and the Atlanta’s GDPNow (‘GDPN‘) in their deliberations, we must watch it carefully.   Use it to make business and investment decisions ahead of GDP releases.   Stay up with it each week or two – and you’ll be far more educated than your competition!


THE BLOG: How accurate is our new tool – the GDPN – at predicting the quarterly GDP figure before it’s announced?  It’s pretty close.   In March, 2015; June, 2015; and March, 2016, the GDPN forecast was within 0.1% of the actual GDP release.   In September and December of 2015, it was off by .4% and .3%, respectively.   Certainly not a perfect record, but it definitely offers us value.  When combined with the Nowcast (and this time I’ll throw in the Minneapolis FED VAR model) we have a pretty good data set.

As we know, the Nowcast is released every Friday.  The GDPN, on the other hand, is updated 6 or 7 times a month following certain data releases.   On Friday, June 3rd, both were released.  And, ironically, the most recent Minneapolis FED VAR update, too, came out on the 3rd.   Excellent.

What do they all tell us?

Nowcast:   Friday’s update suggests 2016: Q2 GDP growth is picking up steam.   Today’s Nowcast is 2.4%.   Here’s the graphic (Click to enlarge):

nowcast

Look at the weekly trend.  Clearly the analysis is forecasting more strength in our economy – far more than Q1.

GDPN:  The Atlanta FED model forecast is right in line.   Here is what they said:

“The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2016 is 2.5 percent on June 3, unchanged from June 1.”

Additionally, they added a private forecast.  The graphic below shows the GDPN forecast (green line) overlaid on the Blue Chip consensus (blue line):

GDPN

Finally, let’s take a look at the Minneapolis FED VAR update.   This VAR prediction is slightly lower that the prior VAR forecast.   Just slightly:

var

The VAR, however, is predicting a 2016: Q2 GDP of between 3.5% and 4%…before falling back to it’s longer term trendline of about 1.8% annual GDP.

Let’s summarize.  We have three forecasts.   The Nowcast – an analysis updated with weekly data – is predicting a GDP reading slightly better than last week, at 2.4%.   The GDPN is unchanged from it’s last reading, at 2.5%.   And the VAR, a model updated about once a month, is predicting a strong Q2 – possibly in the high 3s – before sliding back into a longer term, lower range.

One thing is clear:   It’s very likely 2016: Q2 GDP will be much stronger than Q1.   Of course, that’s not saying much.  Q1 was a paltry 0.8%.

I remain steadfast in my belief that a data-dependent FED can’t possibly see a run-away economy here.  One requiring interest rate increases.  Even if they ignore the evidence from the EU and Japan, with their staggering $10 trillion in negative yielding sovereign debt , they can’t ignore the simple facts right here at home:   This US economy is simply percolating…not overheating.   And there’s no overheating in sight.

The FED, I believe, will once again hold firm.   No rate increase now.

  • Terry Liebman

About TerryLiebman

Terry Liebman is the founding member of Liebman Group Advisors, LLC. Mr. Liebman has almost 35 years experience in commercial and single-family real estate space, business leadership and business investment. After a start in single family home sales in 1976, Mr. Liebman earned a California real estate broker license in 1979. His early involvement in multi-tenant and commercial real estate syndication in 1980-1986 eventually led to a lengthy career in real estate finance. While currently serving as the President and CEO of LGA, he also serves as the CEO and President of Loan Link Financial Services, a mortgage bank founded in 1986, with over $8 billion in fundings between 2003 and 2007. Mr. Liebman serves on numerous Boards including that of Awards-Superstars, Inc., where he is a minority shareholder in the largest Century 21 franchise group in the country with over 1,300 real estate agents and an excess of $10 billion in sales between 2005 and 2007. In addition, the Century 21 franchise group retains ownership in a national relocation company and property management company, supporting a well-diversified presence in the single-family real estate sector. Mr. Liebman is one of the managing partners in investment vehicles owning two large (2) office buildings in Orange County, California, as well as a commercial property management company, Siegel Liebman. Mr. Liebman holds a BBA in Finance from the California State University at Northridge.
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3 Responses to GDP Nowcast Update – June 3, 2016

  1. Joe Colonnetta says:

    Good report of a mushy topic.

    The release that 95mm people over 16 are under employed is disturbing.

    Joe Colonnetta HBC Investments 214-451-4642

    Like

  2. Pingback: SHI Update: 06/15/2016 | terryliebman

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