Don´t “blame the messenger”

There has been a lot of that lately given the astonishing downward revision of RGDP in the last revision of the first quarter number. A good example is “Quarterly GDP Reports: Read At Your Own Risk”:

If you were already skeptical of the quarterly GDP reports as the basis for making informed decisions about investing and business strategy, yesterday’s article from Floyd Norris at The New York Times is sure to increase your suspicion that these figures are of dubious value. Norris digs a bit deeper into the strange case of a reported 2.9% contraction in Q1 while “employers hired more people than in any quarter over the last six years, signaling gathering strength in the economy.”

Many have been predicting a strong rebound in the second quarter. But that has been paired down:

After a shocking contraction in first quarter GDP, economists on Thursday pared back growth forecasts for the second quarter due to weaker consumer spending.

Consumer spending in May rose just 0.2 percent, half of what was expected, after being flat in April. Spending by consumers accounts for more than two-thirds of U.S. economic activity, and the lowered growth forecasts now raise concerns that the economy will not be able to rebound to the more than a 3 percent growth rate widely expected for the balance of the year. 

Goldman Sachs economists trimmed second quarter tracking GDP to 3.5 percent from 4.1 percent, and Barclays economists said tracking GDP for the second quarter fell to 2.9 percent from 4 percent. At a pace below 3 percent, the economy could show contraction for the first half due to the steep first quarter decline of 2.9 percent.

The Atlanta Fed has joined in the “NowCasting” producing fray:

With this macroblog post, we introduce the Federal Reserve Bank of Atlanta’s own nowcasting model, which we call GDPNow.

GDPNow will provide nowcasts of GDP and its subcomponents on a regularly updated basis. These nowcasts will be available on the pages of the Atlanta Fed’s Center for Quantitative Economic Research (CQER).

A few important notes about GDPNow:

  • The GDPNow model forecasts are nonjudgmental, meaning that the forecasts are taken directly from the underlying statistical model. (These are not official forecasts of either the Atlanta Fed or its president, Dennis Lockhart.)

  • Because nowcasts are often based on both modeling and judgment, there is no reason to expect that GDPNow will agree with alternative forecasts. And we do not intend to present GDPNow as superior to those alternatives. Different approaches have their pluses and minuses. An advantage of our approach is that, because it is nonjudgmental, our methodology is easily replicable. But it is always wise to avoid reliance on a single model or source of information.

  • GDPNow forecasts are subject to error, sometimes substantial. Internally, we’ve regularly produced nowcasts from the GDPNow model since introducing an earlier version of it in an October 2011 macroblog post. A real-time track record for the model nowcasts just before the BEA’s advance GDP release is available on the CQER GDPNow webpage, and will be updated on a regular basis to help users make informed decisions about the use of this tool.

The chart below illustrates the GDPNow track record. Notice that the model appears to have improved since the early version was introduced.

AFNowCast_1

What does GDPNow have to say about the first release of Q2 RGDP?

AFNowCast_2

If they are right, the economy will show a small contraction for the first half of 2014!

And what´s the Fed doing? Worrying if it should introduce a new (“financial stability”) mandate!

What about President Obama? He´s optimistic about the economy:

– President Obama has made one thing clear while traveling from the Rocky Mountains to Texas this week: The economy is the best it has been in years and is only getting better.

One thought on “Don´t “blame the messenger”

  1. It is puzzling, that with so much commercial information instantly available online, that guessing at GDP remains that standard.

    I feel like nothing has changed since the 1970s in estimating GDP.

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