NGDP Outlook Update: Surging into 2019

We’ve said before that the US economy is not currently booming, this is demonstrably true. Growth in Q1 and Q2 was a nice surprise, welcome, but we’re not yet partying like it’s 1999. The past week has however seen the outlook improve markedly with our forecast for year-over-year NGDP growth in Q3 2019 waxing to 5.2% and the Hypermind market for Q1 2019 hitting a similar number. Our forecast system, which produces projections for all quarters in the coming year, has the Q1 2019 figure at nearly 6%, well ahead of Hypermind. If we actually see a few quarters of 5%+ YoY, well then maybe we’ll use the “B” word.

Since we upgraded our market-driven forecast engine in August, the forecast has risen from around 4.6% to the current 5.2%. As the NGDP revision in this interval was minimal, this improvement has been entirely driven by improvements in the market outlook. Digging into the data, we see that the improved outlook is broadly shared across the asset prices we consider. Oil, the S&P 500, short-term Treasury yields, 5-year TIPS spreads, 5- and 10-year Treasury yields, and four of the five yield curve spreads we use have all improved. About the only asset that hasn’t moved in a bullish direction is copper, which is likely reflecting weakness in the tariff-hobbled Chinese economy.

Some might object to our methodology and we welcome constructive criticisms. But if you take the Efficient Markets Hypothesis seriously, you have to ask yourself “why are asset prices rising?”. Most likely it’s because the outlook for aggregate income growth in the US is improving. Given that the recent US NGDP growth rate is around the mid ‘four-percent ‘, our forecast of NGDP growth above 5% is entirely plausible, reasonable and perhaps even likely.

We eagerly await the Q3 NGDP estimate, which comes out in the end of October. This will give us firming footing on this bold forecast, yet the markets speak for themselves. If NGDP comes in inexplicably weak, it should follow that markets were wrong and that asset prices will fall as they certainly are pricing in growth not seen in over a decade.



  1. // Reply

    Great news here but is this consistent with the thrust of your prior pieces in recent months. My sense is that there has been a bearish cast to your projections, but perhaps I was not paying close enough attention. Did something change or have you altered your nominal-GDP-growth forecasting models? Tx …

  2. Justin Iriving
    // Reply


    Thanks for your comment. I revised the NGDP forecast models in August. It was past time to give them a refresh, this added about 0.6 percentage points to the year-ahead forecast, really quite a lot. Following that, strong market sentiment has lifted the forecast another 0.6 percentage points. So I think mostly you have a fair observation, I did not anticipate the current improvement in the outlook, I was thinking growth would be 4% to 4.5%. Some of this was due to under-performing forecast models and some was due to simply not anticipating the strong rise in markets. Our approach is not to try to beat markets though, we are trying to be more honest than your typical forecaster, we can’t beat markets. We instead use the markets to forecast the economy, so we are routinely surprised and expect to be so. I can’t speak for the other Advisers, but my personal view at this point is we need to dare to be hopeful. The US economy is not currently “booming” but it may well be on the edge of booming. 2019 could be a very good year, the best in more than a decade. So yes, I am markedly revising my outlook.

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