NGDP Outlook

NGDP Outlook Update – February 2019 A look at the Treasury Market

Let’s do a recap of the recent history of NGDP expectations. At the End of Q3 2018, the NGDP outlook was nearly fantastic. Throughout Q3, year-ahead expected NGDP, as interpreted by out market-driven forecast engine was holding around 5%. When Q4 began, there was a small dip in the year-ahead expectation, arising from the shift to a new four-quarter window in our calculation of YoY growth, not data.  The quarter started out fine, with expectations hitting 4.6% on November 7, 2018. Things went south from there; following a series bearish Fed actions and non-actions, in the face of flailing markets… Read More

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NGDP Christmas Update

We wish you a Merry/Happy Christmas, but regret that the only gift we have is a delayed forecast update, and gloomy one at that. This quarter has been a disaster for the outlook. We started at 4.7% expected current-dollar growth and are ending at 3.4%. This is the biggest drop in a forecast we’ve seen in a quarter. At 3.4%, the NGDP outlook has swung from a post-recession high, to the lowest level since early 2017. If this forecast proves accurate, the weaker NGDP path won’t cause a recession, but it is inexplicably irresponsible of the Fed to in October… Read More

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NGDP Outlook Update - November 2018

We got our first read on Q3 2018 NGDP last week, it came in at $20.659 trillion, right in line with our model’s number of $20.684 trillion, based simply on the model’s time series ‘momentum’ of the recent NGDP component and the market prices component. Recent NGDP movements are the best predictor of future NGPD movements, even more so than market signals; so often NGDP updates can move our forecast quite a bit, but not this time. Instead, the forecast has dropped due to…you guessed it…the huge drop in US equity prices, commodities, a bearish shift in the yield curve… Read More

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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… Read More

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NGDP Forecast Model Refresh – Taking the Forecast to “11”

We’ve recently overhauled our forecasting system. It was a good time to do this, as the recent GDP revisions could have altered the statistical relationships between NGDP and our market-derived factors. Updating the forecast system The starting point for our forecasting approach is to assume that Market Monetarism is true enough to be useful. We take it as given that a weak form Efficient Market’s hypothesis is in play, and that an important determinant of many traded financial market prices is the expected path of US nominal GDP. It is easy enough to point out that market prices assume certain… Read More

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Moving to the 2018Q3 Year-Ahead Outlook

We’ve come to the end of the Q2 2018 forecast. This is a good time to review how the market outlook stands. Our forecast for year-over-year NGDP growth in 2019Q2 ended just hair over 4%, the forecast for the next quarter, which is currently only visible by mousing over the end of the plot, as there is only one day of data available for this current quarter, stands at 3.9%. Please note that the current forecast available on Hypermind is for 2019Q1. Hypermind traders have that figure at 4.4% or 4.5%, whereas our system sees it at 4.3%, so we… Read More

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NGDP Outlook Update: First Estimate of ‘18 Q1 NGDP as Expected

We’ve updated the NGDP Forecast for one market day, Thursday April 26, but using the just-updated NGDP data, including the first estimate of 2018’s first quarter. The NGDP report may have looked good if one considers year-over-year growth, but quarter-on-quarter is the only new information truly contained in the report, and this is how it shows up in the forecasting model. The signal is the 4.3% annualized quarterly rate, not the 4.8% year-over-year that Q3 and Q4 ‘17 earned us. The NGDP outlook is lifted a twentieth of a percentage point by the new BLS figures. To get our year… Read More

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NGDP Outlook Update Q1 2018

As historically unremarkable as present economic conditions are, it’s still worth noting they were unexpected (at least by us, and many others). It was only a year ago that NGDP expectations were not far from 3.5%; today NGDP is expected to fly along just around 4.7% year-over-year for the next two quarters, closing at 4.25% for the year ending 2019Q1. We are now at a multiyear high in terms of a relatively simple, consistent methodology, forecasting NGDP, “t plus one year”. This forecast is mostly driven by recent NGDP changes, which is why it is not too inaccurate in a… Read More

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NGDP Outlook Update January 2018

Our new NGDP forecast, for 2019Q1, is coming in a bit north of 4.1%. This is the first time we’ve started a new forecast above 4.0%, the previous vintage starting a 3.9%. We begin a new forecast every quarter. By convention, we always look one year ahead of the current quarter. The current upward drift in the forecast is driven by WTI oil, stocks and to a lesser extent the yield curve steepness. TIPS spreads have been an erratic force on the forecast. As strong as the forecast is, relative to the outlook in recent years, it’s probably too bearish.… Read More

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NGDP Forecast Update: First Q3 Print

During the first month of every quarter we are flying, even if not quite blind, not as well informed as we might like.  This is because we don’t get official statistics on the previous quarter’s GDP until a month in. As a result, we have to use an estimated GDP number, which means we usually have a bit of a ‘correction’ when the first estimate comes in. For 2017Q3, the first GDP estimate was released on Friday, October 27. The new GDP number has US final nominal spending at a yearly pace of 19.495 trillion USD, which is up an… Read More

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