NGDP Forecast

NGDP Outlook

  • 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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  • 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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  • 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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  • 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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  • 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… Read More

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NGDP Forecast

The market-driven nominal GDP forecast is updated using closing prices of a set of assets for each trading day. The plot below shows year-ahead forecasts for each day, in effect showing what markets expected for nominal growth in the coming year at each particular day.  The NGDP forecast is driven by the S&P 500, 5-year TIPS spreads, copper prices, 3-month Treasury bill yields, two-year Treasury yields, the US dollar index and front-month oil futures. Aside from the design of the models used to produce the forecast, no human judgement or secondary adjustment is used in the forecast: only the market data and government nominal GDP statistics are used to produce the forecast.

The forecast is of quarterly, year-on-year NGDP growth for a year ahead. At the end of each quarter our forecast trips over into a new quarter, so generating a discrete break at that point. We look at medium term growth as it excludes near term noise from fiscal policy changes, volatile price moves, inventories and net exports. Trend growth is what matters and that is best seen by looking out further than just one or two quarters.

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