On Monday, following construction spending and ISM reports, GDPNow upped its estimate of second-quarter GDP from 2.7% to 3.0%.

I am increasingly confident that its estimate is way too high. Let’s take a look at my reasons starting with the latest GDPNow forecast.

GDPNow Latest forecast: 3.0 percent — July 3, 2017

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2017 is 3.0 percent on July 3, up from 2.7 percent on June 30. The forecasts of second-quarter real nonresidential structures and residential investment declined from 1.6 and 2.5 percent to 0.6 and 0.1 percent, respectively, after this morning’s construction spending release from the U.S. Census Bureau. The forecasts of second-quarter real consumer spending and nonresidential equipment investment growth increased from 3.1 and 3.0 percent to 3.5 and 4.7 percent, respectively, after this morning’s Manufacturing ISM Report On Business from the Institute for Supply Management.

Soft Data Silliness

GDPNow, as does the Federal Reserve Bank of New York Nowcast, places way too much faith in soft data reports that are not worth a hoot.

On July 3, I commented ISM vs Markit PMI Divergence Widens Again: Believe Markit.

Had GDPNow been following Markit’s PMI instead of ISM it would not have added 0.3 percentage points to its forecast.

Construction Bump

GDPNow started off its initial forecast on May 1, at an unbelievable 4.3% largely due to huge construction spending revisions for the fisrt quarter.

Although actual hard data never matched that initial forecast, the model only corrected slightly.

Contributions to GDPNow Forecast

On May 1, GDPNow estimated Personal Consumption Expenditures (PCE) as adding 2.22 percentage points to second quarter GDP.

Total the numbers horizontally to arrive at the GDP forecast in blue.

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