NGDP Forecast

NGDP Outlook

  • The 2007-2009 recession was a disaster. Some lives were ruined while far more were disrupted. An entire generation endured a half-decade of underemployment in the pathetic pseudo recovery that followed. The Great Recession didn’t have to happen, the Fed could have followed the Greenspan playbook and “got out ahead of the markets” (even Trump got it at the time). The Fed could have done more than expected and reshaped expectations. It could have done its job. We can at least say that 2008 was a relatively challenging period. The subprime housing crisis stressed an over-optimized financial system. Strong growth in… Read More

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  • The NGDP outlook continues to deteriorate. We’d known for a few quarters now that growth was likely to slacken in 2019 compared with the robust 2018, but the combined effects of the market draw down and weaker than forecasted NGDP and NGDI have sapped the model’s outlook far beyond what was anticipated. To put some numbers to it, in late September 2018, our system forecasted about 5.2% year-over-year growth in Q4 2019. The Q4 2019 forecast fell further to 3.4% in mid-January and thence to a meager 2.9% in the latest read. [Note that if you look at the NGDP… Read More

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  • 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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  • 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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  • 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 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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