NGDP Outlook

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…...

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GDP Outlook Update…Real GDP!

We stress nominal GDP in our posts, for reasons that are at this point well established. This shouldn’t be taken to mean we don’t care about real output, other’s simply cover it so much that we tend to leave the subject alone, unless there’s good reason not to. Real GDP is a tricky concept. In a modern economy of such vast complexity a concept like real GDP certainly has a meaning, but we shouldn’t think it comes close to fully describing the ‘magnitude’ of the economy, which is what it’s about: size. It might be better if RGDP were thought…...

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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…...

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NGDP Forecast Update: Holding Above 4%

Despite all the headlines and data releases in September, the near-term outlook held quite steady since our last update, with the latest reading for our 2018Q3 NGDP forecast around 4% after rounding. This means the economy is set to be a little less “cool” in 2018 than 2017, but not by a whole lot. There’s been a tiny drawdown, about 0.05 percentage points since last week, but such a small move is “decimal dust” in the world of macro, and is really only noticeable because the forecast was glued to 4.1% for most of the month. New GDP and Gross…...

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NGDP Forecast Update: What has driven it higher?

The NGDP forecast climbed higher, to a little over 4%. To get a sense of why the forecast has moved higher through August, we can start by looking at the sub-models. When we look at the sub-model forecasts, patterns emerge. Firstly, all the models are up a little, indicating the main direction of markets has moved in a way consistent with higher NGDP. Further, Models 2 and 4 have increased a good amount. It turns out these two share a data matrix. This dataset is unique in that it contains two principal component scores, whereas the other models make use…...

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Under the Hood – NGDP Sub model forecasts

Our NGDP forecast, more precisely, our estimate of the markets NGDP forecast, is not the result of a single model. As is more and more common, we keep a ‘stable’ of top models, and average the forecasts from them. The idea is that, once we narrow the basket down to only models that performed well in the past, it becomes hard to say which model is best, so we consider them all. Our current forecast of about 4% nominal growth over the next year results from averaging forecasts across five models. The basic picture—ignoring the details—is that Model 3 and…...

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August 22 NGDP Update: Forecast lifts higher

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…...

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NGDP Update: 2018Q3 Forecast begins

It is the start of a new quarter, this means we move our focus from the tired old 2018Q2 forecast (shown in the plot below as the orange line) and move on to the exciting and fresh 2018Q3 forecast (the blue/purple line). As always, the discontinuity between the two forecast lines is a feature, not a bug. To the unfamiliar, the forecast may appear to have fallen, but really, it is not much changed. We are just looking at a different point in the forecast now. The take-home remains unchanged from previous updates. The big picture is this: the economy…...

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NGDP Update, July 3 2017

The forecast has rebounded. Immediately following the Fed’s June 13 meeting, markets moved (overall) in a direction that indicated less NGDP growth. A few indicators have however turned up at the end of June, resulting in a rebound in the outlook to the high-point of the quarter. Indicators that have rebounded include 5-year TIPS breakeven, the copper price, the Dollar index and the 5-year yield, which rose from 1.59 to 1.62. The 5-year yield increase suggests the market thinks the Fed will be able to keep rates up. What is notable is what hasn’t fall far from pre-rate-hike levels such as…...

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NGDP Outlook June 15th 2017

Market-implied NGDP expectations fell from 3.9% year-ahead before the recent Federal Reserve policy statement, to just above 3.8% after. A disappointing result and a stark way of quantifying the restrictiveness of current Fed policy. The Fed had announced months ago that four rate hikes would be done in 2017, and yes, they really mean it. We think nominal income growth is the best single way to quantify what monetary policy is doing to the economy, but if you’d prefer the Fed’s Personal Consumption expenditures price index along with job growth, well then the message is the same: the economy is…...

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