August 22 NGDP Update: Forecast lifts higher
The NGDP forecast has hiked from under 3.8%, up to 3.9% in dramatic fashion through late July. Well maybe not so dramatic, and the change is not so big, it is at least a consistent movement. What’s more, the forecast has mostly held at this level for the past week.
The tenth-of-a-point run up has been driven by US dollar weakness and the potentially linked increase in the copper and oil price forecast inputs. The increase in copper and oil is however more than that explainable by a first order forex response. Copper is up about 9.5% from early July, oil up 3%, which is perhaps mostly due to dollar movement. Still, none of these components dominates the system, and the important yield curve components and inflation breakeven rate are more or less unchanged in this period, as is the S&P 500.
Our weighted-model forecast seems to be saying one thing clearly, the outlook has improved, albeit just slightly, and NGDP is on track for nearly 4% for the year ahead. The currently active 2018 Q3 forecast is the second highest average vintage in our catalog, bested only by the vintage two quarters back, run in Q1 of 2017. So while the outlook is hardly anything to get excited about, it’s the best we’ve seen in a few years.