NGDP Outlook

Markets seem to be forecasting the best NGDP outlook since the fourth quarter of 2015. This is however not saying much, as the outlook has been downbeat for all of 2016, and our market-driven forecast is still only at 3.8%.  What does this 3.8% mean? It means the market is expecting 2017 to look a little better than 2016. We’re not off to the races, we’re not set for a boom, but we’re also hardly looking at a recession. This isn’t to say that a recession is off the table, monetary policy is set by the choices of a relatively small number… Read More

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The latest update to our NGDP forecast, for the trading days of Nov. 29 though Dec 1, was run using the BEA’s second estimate of nominal GDP (revised up) as well as the first estimate of GDI (Gross Domestic Income). GDI is an alternative, but equally (possibly more) valid measure of GDP, using the income-side of final transactions to compute nominal spending/income. We use both GDP and GDI when forecasting nominal GDP, though the previous quarter’s number isn’t available until the second month of the current quarter. As the figures stand today, the latest GDP measure has Q3 up 1.1% from… Read More

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The basket of U.S. financial market prices that NGDP Advisers uses to update the NGDP forecast ended Nov. 9th in a slightly more bullish direction than they had ended Nov. 8. Overall the forecast rose to 3.72% from 3.68%.  Although the U.S. dollar strengthened (by itself a ‘bearish’ input into the model) stocks, copper, oil, long-short spreads, yields and the 5-year TIPS spread all moved higher (‘bullish’ signals for the model). This was a surprising result to us, particularly after futures for the S&P 500 fell hard when the results of the vote became clear the night before. Overall this… Read More

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A new datum for the 2017Q4 forecast

On Friday, October 28 the first estimate of US nominal GDP in the third quarter of 2016 was published by the BEA. Although the first GDP prints are based on incomplete data and subject to meaningful revision, it’s still much better than nothing, from a statistical stand point. For each of our quarterly forecast runs, we’re compelled by data limitations to forecast without having any number for the previous quarter’s NGDP level for the first month. When the BEA publishes its first NGDP estimate at the end of the month, we add it into our process right away and the result… Read More

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We are now in the fourth quarter of 2016, so this means it’s time to roll into the 2017Q4 forecast in keeping with our aim to always maintain a year-ahead NGDP expectations focus. Because we show you the year-over-year change in our forecast, rather than the levels, there can be some volatility when we switch to a new forecast due to small fluctuations in how much greater each quarterly NGDP value is relative to it’s neighbors.  It’s not that our forecast has changed, it’s  just that we’re showing you a different part of it. This is why the forecasts are plotted… Read More

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The NGDP forecast for 2017Q3 is coming to an end. Like markets, it has shown remarkably little volatility. There have been a few small bumps that have been hugely magnified in the financial press desperate for news, but recent data plus market-implied trend growth is very stable. We have worried about the trend in Base Money but it is  not feeding into markets. An example is the Major Currencies USD Index that has remained in a very tight channel indeed.

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The latest forecast, for the third quarter of 2017, has held in a tight range, between 3.6% and 3.75%, indicating that markets haven’t been seeing much change in the economic outlook. As such, the economy is expected to continue growing at an unsatisfactory low rate.

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The FOMC removal of the word “patient” from its outlook had been correctly anticipated by markets leading to a big drop in market expectations for NGDP growth, most especially seen in the long USD rally. The actual removal of the word and its replacement by similarly soothing text, was enough to lead to a sharp upturn in the forecast.

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The last quarter ended badly for our NGDP Forecast, with nominal growth in 2015Q3 forecasted at 3.4%. Tight money toward the end of the Fed’s “QE3” easing program has seriously weighed on the growth outlook. The 10% rise in the USD Index against major currencies, the 10% drop in the S&P and the fall in the oil price during September have all taken their toll on our market-led forecast. The roll into our 2015Q4 forecast shows NGDP growth one year ahead back at nearly 3.8%. The jump is mostly from the higher growth rate seen in the 2014Q2 NGDP growth rate figure… Read More

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