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February 17, 2018 | Economic Boom Thesis Nothing More Than a Hurricane-Related Mirage

Mike 'Mish' Shedlock

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
On Friday, both GDPNow and Nowcast updated their models. The former estimates 1st-qtr GDP at 3.2%, the latter at 3.1%.

It’s been a wild ride for the GDPNow Model, not so for Nowcast.

GDPNow Forecast: 3.2 Percent – February 16, 2018

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2018 is 3.2 percent on February 16, unchanged from February 14. The nowcast of first-quarter real residential investment growth fell from -0.6 percent to -1.7 percent on February 15 after the industrial production release from the Federal Reserve Board of Governors and the Producer Price Index release from the U.S. Bureau of Labor Statistics. The nowcast increased to 0.6 percent after this morning’s new residential construction release from the U.S. Census Bureau.

Nowcast Forecast: 3.1 Percent – February 16, 2018

  • The New York Fed Staff Nowcast for 2018:Q1 stands at 3.1%.
  • News from this week’s data releases decreased the nowcast by 0.2 percentage point.
  • Positive surprises from housing starts and building permits only partly offset negative surprises from retail sales, industrial production, and capacity utilization.

GDPNow Evolution

Let’s switch to a portion of GDPNow ‘s downloadable spreadsheet for further details.

Change in Private Inventories

Unlike Nowcast, GDPNow estimates the Change in Private Inventories (CIPI).

Overall GDP is at 3.2% down from 5.4% on February 1. GDPNow’s real final sales estimate stands at 2.0%, down from 4.1% February 1.

Final sales is the true bottom line measure because additions and subtractions to inventory net out over time.

If we get another bad retail sales report, as I suspect, that 2% estimate will shrink even further.

Boom Was a Mirage

The hype we have seen about the strengthening economy now appears to be nothing but a hurricane-related mirage, something as I suggested would happen months ago.

For a look at why the GDPNow model went haywire, please see Pat Higgins Explains the Wild 5.4% GDPNow Forecast Made February 1.

The problem with models is they do not think.

Mike “Mish” Shedlock

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February 17th, 2018

Posted In: Mish Talk

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