NGDP Outlook

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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Q2 2014 was a similarly quite quarter for our US NGDP Forecast. Like last quarter the roll into the new quarter has resulted in a small drop in expected NGDP growth, now forecast at 3.6% growth. The economy continues to grow very slowly, with this being the slowest recovery on record.

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An uneventful quarter for markets meant an uneventful quarter for our NGDP Forecast. The new, lower level, of growth reflects markets beginning to worry more about the end of QE3 and what might happen afterwards – but the change is small, just 3.8% to 3.7%.

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We now expect 3.8% YoY growth 12 months ahead in 1Q 2015. This poor rate of growth but enough to see the unemployment rate continue to fall but not enough to see healthy nominal or real wage growth. The endlessly discussed ending of QE3 will continue to keep a lid on growth rates.

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