NGDP Outlook
- NGDP Outlook Update – November 2018 1 Nov 2018
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
- NGDP Outlook Update: Surging into 2019 23 Sep 2018
We’ve said before that the US economy is not currently booming, this is demonstrably true. Growth in Q1 and Q2 was a nice surprise, welcome, but we’re not yet partying like it’s 1999. The past week has however seen the outlook improve markedly with our forecast for year-over-year NGDP growth in Q3 2019 waxing to 5.2% and the Hypermind market for Q1 2019 hitting a similar number. Our forecast system, which produces projections for all quarters in the coming year, has the Q1 2019 figure at nearly 6%, well ahead of Hypermind. If we actually see a few quarters of… Read More
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
- Moving to the 2018Q3 Year-Ahead Outlook 5 Jul 2018
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
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
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.