NGDP Forecast Update: Start of 2018Q4 forecast

We’ve entered the year’s last quarter. This means we abandon the old forecast, and start booking a new vintage: the 2018Q4 forecast. We’re trying to forecast how much nominal income growth there’ll be in one year’s time. It is now Q4 of 2017, thus Q4 of 2018 is the number we seek to hit.

The new forecast is coming in only a bit ‘lower’ than the previous vintage. About 4% vs about 4.1% in the old vintage. Keep in mind the gap between in forecast vintages in the plot above, does not imply a change in outlook. It’s simply a case of looking at different spots in the ‘forecast space’. We are now looking at an interval that is 1 quarter advanced, so some extra difference in the year over year growth rate is expected.

The outlook has actually improved, contrary to what the plot might misleadingly imply. The 2018Q3 forecast is tracking 4.16%. You can spot the forecast improvement if you squint at the short orange line, as it rises gently. The roughly one-tenth percentage point rise in the forecast is due to broad support across predictive asset classes, with only the US Dollar index weighing on the outlook in the first four days of October.

The forecast is naturally mirroring market movements, and rising even against the headwind of a more likely December rate rise. The thing to note however, is that the forecast is not running particularly ‘hot’ to use a car metaphor. If markets, taken as a whole, were exuberant, the forecast would be unreasonable. 4% on the other hand is what everyone else is forecasting too. It seems safe enough to conclude from this that stocks are not hugely overvalued, but your mileage may vary.

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