NGDP Forecast

NGDP Outlook

  • We’ve recently overhauled our forecasting system. It was a good time to do this, as the recent GDP revisions could have altered the statistical relationships between NGDP and our market-derived factors. Updating the forecast system The starting point for our forecasting approach is to assume that Market Monetarism is true enough to be useful. We take it as given that a weak form Efficient Market’s hypothesis is in play, and that an important determinant of many traded financial market prices is the expected path of US nominal GDP. It is easy enough to point out that market prices assume certain… Read More

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  • We’ve come to the end of the Q2 2018 forecast. This is a good time to review how the market outlook stands. Our forecast for year-over-year NGDP growth in 2019Q2 ended just hair over 4%, the forecast for the next quarter, which is currently only visible by mousing over the end of the plot, as there is only one day of data available for this current quarter, stands at 3.9%. Please note that the current forecast available on Hypermind is for 2019Q1. Hypermind traders have that figure at 4.4% or 4.5%, whereas our system sees it at 4.3%, so we… Read More

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  • 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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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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