GDPNow and Nowcast Head in Opposite Directions on Trade Data: Pot Shot Coming Up
The GDPNow model forecast rose 0.3 percentage points due to a favorable imports-export trade report on that day.
GDPNow creator Pat Higgins commented "The nowcast of the contribution of net exports to fourth-quarter real GDP growth increased from -0.52 percentage points to -0.23 percentage points after this morning’s international trade report from the U.S. Census Bureau and the U.S. Bureau of Economic Analysis."
Meanwhile the New York Fed Nowcast model had the nearly equal but opposite reaction.
GDPNow vs Nowcast
The models have been reasonably close all quarter. The gap widened on Febuary 6 when GDPNow rose .03 PP while Nowcast fell 0.2 PP on the same trade data.
Trade Gap Narrows
The trade gap shrinkage on Feb 6 was unexpected. I commented Trade Deficit Shrinks in November Primarily Due to Falling Imports.
Here's a couple of important points.
- This was November, not December data, the latter is still delayed due to the government shutdown.
- Via Bloomberg, "The narrowing of the trade balance in November is unsustainable and was due to one-off factors -- some of which are poised to reverse soon. We expect the trade gap to widen in December, translating into a net drag on growth at the end of 2018. All told, monetary policy is unlikely to be driven by changes in trade policy."
I believe Bloomberg is correct. Thus, it appears GDPNow over-reacted to data that is highly questionable.
GDP Pot Shot
More so than usual, expect a GDP Pot Shot on Feb 28, as Not All Inputs Finalized.
- Construction spending, international trade, and inventories are GDP inputs.
- The BEA will run with the advance trade, wholesale and retail inventory indicators released on February 27 rather than full reports.
- New home sales for December as well as construction appear to be complete pot shots. Those reports come out after the GDP estimate.
Mike "Mish" Shedlock