Courtesy of Mish.
Tomorrow the BEA will release its advance GDP number for first quarter GDP. I revised my estimate today as did ZeroHedge and GDPNow. The lowest estimate in the group is GDPNow at 0.2%. Here are the numbers starting with GDPNow.
GDPNow Forecast: 0.2 Percent — April 27, 2017
FRBNY Nowcast: 2.7 Percent — April 21, 2017
Model Flaws
- Nowcast uses no hard auto data: This is a serious error. Autos account for 20% of retail sales and fleet sales are also very important.
- Nowcast has an incorrect reliance on unemployment rate: People dropping out of the labor force and actual employment rising can both move the number in the same direction. Both things cannot mean the same thing.
- ISM vs PMI: Both reports measure the same thing, yet those reports signal very different things. At least one of them is wrong. GDPNow and Nowcast both rely on ISM even though the PMI reports have been more accurate, at least recently.
- The GDPNow and Nowcast models both suffer from an inability to think. The weather provides a nice example. In December, the weather was unusually cold, causing Industrial Production numbers to soar (heat and electric production), for the entire upcoming quarter. I estimated in advance, January would take away those numbers. My assertion played out, at least for GDPNow. I still cannot account for Nowcast.
ISM vs PMI
I discussed the difference between ISM and Markit’s PMI estimates recently, for both manufacturing and non-manufacturing (services).
- April 3: Markit PMI vs. ISM Fantasyland GDP Projection: Stagflation Lite?
- April 5: Another ISM/PMI Divergence: Non-Manufacturing
- April 21: ISM-PMI Divergence Widens: Markit Estimates 2nd Quarter GDP at 1.1%, Says Profit Squeeze Underway.
On April 3, the ISM made this statement: “The past relationship between the PMI® and the overall economy indicates that the average PMI® for January through March (57 percent) corresponds to a 4.3 percent increase in real gross domestic product on an annualized basis.”
