Atlanta Fed GDPNow comes back down toward reality

Author: Greg Michalowski | Category: News

Their model sees 4% vs 5.4% at the last reading

The Atlanta Fed GDPNow estimate for 1Q GDP has fallen to 4.0% from 5.4% at the last reading.  

In their own words:

"The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2018 is 4.0 percent on February 6, down from 5.4 percent on February 1. On February 2, the forecast of first-quarter real consumer spending growth fell from 4.0 percent to 3.0 percent and the forecast of first-quarter real private fixed investment growth fell from 9.2 percent to 4.9 percent. On that day, the model's estimate of the dynamic factor for January-normalized to have mean 0 and standard deviation 1 and used to forecast the yet-to-be released monthly GDP source data-declined from 1.37 to 0.43 after the employment report from the U.S. Bureau of Labor Statistics."

The number is back in the ballpark. It is still high but the 5.4% number seemed a bit rich last time.  

NOTE: The 5.4% number last week was an eye opener.  Perhaps in reaction, it seems the Atlanta Fed has added some "color" to their model and what to expect from it (you can see it in full here).  One thing they say is:

"As more monthly source data becomes available, the GDPNow forecast for a particular quarter evolves and generally becomes more accurate. That said, the forecasting error can still be substantial just prior to the "advance" GDP estimate release. It is important to emphasize that the Atlanta Fed GDPNow forecast is a model projection not subject to judgmental adjustments. It is not an official forecast of the Federal Reserve Bank of Atlanta, its president, the Federal Reserve System, or the FOMC."

Keep that in mind when the numbers are reported, especially early in a quarter.  Models are models. They are meant to be mathematically driven but sometimes the formula, spits out some wild numbers.   The Atlanta Fed is saying they hope to mimic reality but the models reality can be much different than the real reality.   Be aware.