Nowcast Today! An Update.

After a 2-week hiatus, here is the latest update from both the New York FED and the Atlanta FED:   The latest GDP ‘Nowcast‘ reports!   Read on!

Follow this link to the complete original post on GDP Nowcast:

https://www.newyorkfed.org/research/policy/nowcast

And here’s a link to the full Atlanta FED ‘GDPNow’ forecast:

https://www.frbatlanta.org/cqer/research/gdpnow.aspx?panel=1

Why you should care:  The Nowcast and GDPNow are both a “sneak preview” into the thoughts of the FED and a highly probably future.    Economists John Faust and Jon Wright sum it us this way, “…by mirroring key elements of the data construction machinery of the Bureau of Economic Analysis, the Fed staff forms a relatively precise estimate of what BEA will announce for the previous quarter’s GDP even before it is announced.”

Excellent.  This is what we’re looking for!

Taking action:    As I’m certain the FED uses the Nowcast and the Atlanta’s GDPNow (‘GDPN‘) in their deliberations, we must watch it carefully.   Use it to make business and investment decisions ahead of GDP releases.   Stay up with it each week or two – and you’ll be far more educated than your competition!

THE BLOG:   You may have noticed we skipped a week.   There was no update last Friday.  No, this time it wasn’t me – I didn’t ‘miss the window!’   No, this time it was the FED.   Apparently they have a ‘black out’ policy during FED meeting periods.   As the FED met on June 14-15, they did not report on June 10.

But they did report today.   Here we go … our first image is from the NY FED (click on the image to enlarge):

Ahhh…it appears GDP growth has cooled a bit.    As of today, this model is forecasting a 2016:Q2 GDP of 2.1%.   Down from 2.4% forecast on June 3rd.

The Manufacturing component of the model was negative on June 15.    The FED tracks ‘Industrial Production and Capacity Utilization‘ – effectively measuring the level of US manufacturing activity.   This metric ebbs and flows each month … here is a portion of the content from the latest release:

“Industrial production decreased 0.4 % in May after increasing 0.6 % in April. Declines in the indexes for manufacturing and utilities in May were slightly offset by a small gain for mining.  The output of manufacturing moved down 0.4 percent, led by a large step-down in the production of motor vehicles and parts.

At 103.6 % of its 2012 average, total industrial production in May was 1.4 % below its year-earlier level. Capacity utilization for the industrial sector decreased 0.4 percentage point in May to 74.9 percent, a rate that is 5.1 % below its long-run (1972–2015) average.”

Let me interpret:  ‘Industrial production’ – the quantity of things made here in the US – is down year over year.   ‘Capacity Utilization’ – how busy factories are – is also down, at a level more than 5% below it’s long term average.

Not good.   Not a positive sign.   Notice I highlighted motor vehicles?   A decline in motor vehicle manufacturing suggest a decline in vehicle sales … a metric tracked by the BEA.   Here’s a chart for sales over the prior year:

In October of 2015, sales peaked at an annual rate of 18.125 million.   In may, this rate was 17.373 – down over 4.3%.   Apparently it was trending down further in June.   I don’t see a worrisome trend here … but we’ll continue to watch.

OK…what did the Atlanta FED have to say?   Here’s their graphic, also from earlier today:

The Atlanta FED model, unlike the NY FED, suggests we’re experiencing acceleration in the GDP growth rate over the reading from June 3rd (2.5%).   According to their GDPNow model, real GDP growth in the second quarter of 2016 is 2.8%.  They attribute this increase to growth in consumer spending and residential investment.

The bottom line:   Both forecasts suggest GDP growth continuing in the mid-2s.   This is a bit more robust than I’ve been expecting, but certainly at the top of the range.   We’ll continue to follow.   Have a great weekend!

• Terry Liebman