GDP estimates generally tanked this week. Curiously, the Nowcast forecast rose. I can show why.
GDPNow
The GDPNow forecast fell from 4.4% on September 26 to 3.8% on September 27, then to 3.6% on September 28.
Disastrous trade data accounted for 0.5 percentage points of the drop on the 27th. Income and expenditures accounted for the entire subsequent drop.
Nowcast
In contrast, the FRBNY Nowcast report rose from 2.3% to 2.5%. About half of that gain was due to the advance inventory report on the 27.
GDPNow vs Nowcast
Imports Do Not Impact GDP
As noted yesterday, imports do not directly factor into GDP.
For discussion, please see Think Imports and Trade Deficits Impact GDP? Think Again!
The reason imports are in the equation are to prevent erroneous totaling of spending. So unless NOWcast accurately counts “domestic” spending, then imports are a factor.
Exports are always a factor, yet Nowcast did not analyze that data point at all.
Checking back through the history I do see that Nowcast factored in the full trade data on September 5. Thus, Nowcast uses some “advance” reports, but not all of them.
I suspect the Nowcast model will show a decline due to trade on the next full release of import-export data.
Real Final Sales
The GDPNow estimate of “real final sales” dove to 1.7%. That is the bottom line estimate of GDP. Inventory changes net to zero over time.
1.9 percentage points of the 3.6% GDPNow estimate is CIPI, Change in Private Inventories.
If the economy is slowing while inventory is building, we have an obvious problem.
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