GDPNow – An Early Indicator of Economic Activity
‐Pat Higgins
AUBER 2015 Fall Conference
October 12, 2015
Disclaimer: The views expressed here are the presenter’s and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System.
•
GDPNow is a statistical model that nowcasts real GDP, and its subcomponents for the next quarter for which the U.S. Bureau of Economic Analysis has not yet released a published GDP estimate.
•
It is uses 100s of time series and it’s nowcasts can change after most major economic data releases.
•
The current and historical model nowcasts are all available on the Atlanta Fed’s website, along with a spreadsheet with all of the numerical details – source data and model parameters – showing exactly how the most recent nowcast is built up.
Sources for GDP nowcasts
Source
Timing/frequency
Atlanta Fed GDPNow
13‐14 updates a month; 5‐6 releases a month
CNBC Rapid Update
About 12 releases per month
Survey of Professional Quarterly (70‐75 days before Forecasters (SPF)
GDP release)
GDP subcomponents
# of panelists Individual forecasts available Free?
13 components (complete partition)
None
7 components (complete partition)
#N/A
#N/A
Yes
About 10
No
Yes
40 to 45 Yes
Yes
About 70
Yes
Yes
Wall Street Journal Forecasting Survey Middle of each month (72, 42 and 12 days before GDP)
Blue Chip Economic Indicators
10th of each month (77, 47 and Consumption, net 17 days before GDP)
exports, inventories.
About 50
No, but average of top and bottom 10 forecasts.
No
Blue Chip Financial Forecasts
1st of each month (86, 56 and 26 days before GDP)
About 45
Yes if 56 or 86 days before GDP release.
No
None
None
Other resources not listed: Bloomberg Monthly Forecasting Survey, Consensus Forecasts (Monthly), proprietary forecasts
Evolution of Atlanta Fed GDPNow real
GDP forecast for 2015: Q3
Quarterly percent change (SAAR)
4.5
Aug 14th: Industrial production
(Spike in motor vehicle assemblies boosts
inventories)
4.0
Sept 28th: Personal
Consumption Expenditures
Range of top
10 and bottom
10 forecasts
3.5
3.0
Blue Chip consensus
2.5
CNBC Rapid
2.0 Update survey
1.5
1.0
Atlanta Fed
GDPNow forecast
0.5
0.0
28-Jul
Sept 29th: Advance foreign
trade report
4-Aug 11-Aug 18-Aug 25-Aug 1-Sep
8-Sep 15-Sep 22-Sep 29-Sep
Date of forecast
Sources: Blue Chip Economic Indicators, Blue Chip Financial Forecasts and
CNBC/Moody’s Rapid Update Survey
6-Oct
Atlanta Fed GDPNow forecasts for 2015: Q3, growth rates and changes
Date
6-Aug
28-Aug
11-Sep
15-Sep
16-Sep
17-Sep
21-Sep
24-Sep
28-Sep
29-Sep
1-Oct
2-Oct
5-Oct
6-Oct
9-Oct
Major Releases
Initial nowcast
Personal income and outlays
Monthly Treasury Statement
Retail sales/Industrial production
Retail inventories (Sep 15), CPI
Housing starts
Existing-home sales
Dur. maunf., New-home sales/costs
Personal inc./outlays, GDP (Sep 25)
Advance foreign trade (goods)
ISM Manuf., Construction spending
Employment, M3 Manufacturing
Autos sales, ISM Nonmanufacturing
International trade
Wholesale trade, Imp/Exp prices
GDP
0.9
1.2
1.3
1.5
1.4
1.5
1.4
1.4
1.8
1.1
0.9
0.7
0.9
1.1
1.0
EquipPCE
ment
2.9
7.5
2.6
8.6
2.6
7.6
3.2
7.2
3.2
7.2
3.2
7.2
3.2
7.2
7.6
3.2
9.0
3.5
3.5
9.1
3.4
8.7
3.4
8.2
3.6
9.2
3.6
11.2
3.6
11.2
Intell.
Change
prop. Nonres. Resid.
in net Change
prod. struct. inves. Govt. Exports Imports exp.
in CIPI
5.6
-0.6
5.4
1.0
3.3
4.7
-13
-68
6.8
2.4
9.4
1.5
4.3
5.8
-15
-63
6.8
4.2
7.4
0.8
3.3
3.7
-6
-61
6.8
4.8
6.9
0.8
3.0
3.3
-6
-69
6.8
4.8
6.8
0.8
3.0
3.3
-6
-71
6.8
4.7
9.9
0.8
3.0
3.3
-6
-71
6.8
4.7
7.6
0.8
3.0
3.3
-6
-71
6.8
4.9
8.4
0.8
3.0
3.3
-6
-74
7.0
5.1
8.5
0.8
3.0
3.5
-70
-7
7.0
5.1
8.5
0.8
1.3
6.8
-70
-37
7.0
2.8
6.1
0.9
1.1
6.5
-37
-70
6.9
2.8
6.1
1.0
1.0
6.4
-36
-75
6.9
2.8
6.2
1.0
1.0
6.5
-36
-76
6.9
2.8
6.2
1.0
1.9
6.1
-29
-76
6.9
2.8
6.2
1.0
2.0
6.2
-30
-80
Note: CIPI is “change in private inventories”. Changes in net exports and CIPI are both in billions of 2009 dollars (SAAR).
All other numbers are quarterly percent changes (SAAR).
Atlanta Fed GDPNow forecasts for 2015: Q3, contributions to growth
Date
6-Aug
28-Aug
11-Sep
15-Sep
16-Sep
17-Sep
21-Sep
24-Sep
28-Sep
29-Sep
1-Oct
2-Oct
5-Oct
6-Oct
9-Oct
Major Releases
Initial nowcast
Personal income and outlays
Monthly Treasury Statement
Retail sales/Industrial production
Retail inventories (Sep 15), CPI
Housing starts
Existing-home sales
Dur. maunf., New-home sales/costs
Personal inc./outlays, GDP (Sep 25)
Advance foreign trade (goods)
ISM Manuf., Construction spending
Employment, M3 Manufacturing
Autos sales, ISM Nonmanufacturing
International trade
Wholesale trade, Imp/Exp prices
GDP
0.9
1.2
1.3
1.5
1.4
1.5
1.4
1.4
1.8
1.1
0.9
0.7
0.9
1.1
1.0
PCE
2.00
1.77
1.75
2.16
2.15
2.16
2.15
2.15
2.38
2.37
2.32
2.30
2.40
2.41
2.41
Intell.
Equip- prop. Nonres. Resid.
Net
ment
prod. struct. inves. Govt. exports
0.22
-0.02
0.18
0.17
0.43
-0.31
0.50
0.27
0.07
0.30
0.26
-0.35
0.44
0.27
0.12
0.24
0.15
-0.14
0.42
0.27
0.13
0.23
0.15
-0.13
0.42
0.27
0.13
0.22
0.15
-0.13
0.42
0.27
0.13
0.32
0.15
-0.13
0.42
0.27
0.13
0.25
0.15
-0.13
0.44
0.27
0.13
0.27
0.15
-0.13
0.52
0.28
0.14
0.28
0.14
-0.15
0.52
0.28
0.14
0.28
0.14
-0.87
0.50
0.28
0.08
0.20
0.16
-0.86
0.47
0.28
0.08
0.20
0.18
-0.85
0.53
0.28
0.08
0.21
0.18
-0.86
0.64
0.28
0.08
0.21
0.18
-0.69
0.28
0.08
0.21
0.18
0.64
-0.70
CIPI
-1.73
-1.61
-1.57
-1.76
-1.82
-1.82
-1.82
-1.90
-1.80
-1.79
-1.79
-1.91
-1.95
-1.95
-2.05
The current GDPNow forecast for third-quarter growth is about the same as the
initial forecast made on August 6th. Upgrades to consumption and equipment
investment have been offset by downgrades to net exports and inventory
investment. Revisions to the third-quarter forecasts for GDP’s subcomponents have
been relatively modest.
Note: CIPI is “change in private inventories.” All numbers are percentage point contributions to GDP growth (SAAR).
This is anHigh
informal
schematic
howGDPNow
the oil model
and consumption
BVAR
following slides
level flow
chart ofofhow
forecast of real
GDPresults
growthon
is the
assembled.
lead me to think about the impact of oil prices on real spending of PCE subcomponents.
Model forecast of real GDP growth in 2015q3. Currently 1.0 percent. Simple arithmetic
13 quarterly real GDP subcomponents for 2014q2‐
2015q2
“Bayesian vector autoregression model” BVAR(5). A standard statistical forecasting model in economics.
Forecast of high‐level GDP subcomponents (e.g. residential investment). Simple arithmetic
Forecasts of very detailed GDP subcomponents (e.g. investment in manufactured homes).
“Bridge equation” forecast
April through September monthly source data for GDP that are already available
Unreleased August and September monthly source data for GDP that need to be forecasted.
Forecast from “factor augmented autoregression” Important monthly variables measuring economic activity: Nonfarm payroll employment, industrial production, ISM manufacturing index, many others. Note: The text in red are inputs to the model. The text in blue are outputs of the model.
Factor‐model estimates of economic momentum
Indices (Average=0, Standard deviation=1)
4
3
Chicago Fed National Activity Index (First principal component)
2
1
0
-1
-2
-3
-4
-5
GDPNow smoothed estimate of dynamic factor
-6
-7
1967
1971
1975
1979
1983
1987
1991
1995
1999
2003
2007
2011
2015
Dynamic factor model (Giannone, Reichlin and Small 2008): Estimated with Kalman filter/smoother Standardized growth rates of 126 real macro time series. Large intersection with data used to estimate Chicago Fed National Activity Index.
0.42
[Observer equation]
0.27
0.15
[State equation]
Factor augmented autoregressions (Stock and Watson 2002):
Forecast September’s real value of private nonresidential construction put in place (VPIP) 1200Δlog
0.43
6.05
1200Δlog
Autoregressive coefficients sum to 0.31.
Bridge equation (Klein and Sojo 1989, Chin and Miller [Minneapolis Fed] 1996):
Predict 3rd quarter growth rate of real nonresidential structures investment excluding mining and wells
400Δlog :
6.1
0.36
0.96 400log
6.0
The chart below illustrates that the growth rate for real business structures investment excluding mining and wells is very highly correlated with the growth rate constructed from monthly source data. Since we get most of the latter before the GDP release we can make a fairly accurate forecast of the former using a simple “bridge equation”. Real investment and construction spending on business structures excluding mining and wells
Quarterly, Annualized logarithmic percent change
40
Value of private nonresidential construction put in put in place (VPIP) deflated by weighted average of Producer Price Indexes for construction 30
20
10
0
-10
-20
Forecast*
-30
Real investment in business structures excluding mining and wells
-40
-50
Correlation between two series over 1985q1‐2015q2 period: 0.97
-60
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
Weighted sum of forecasts
Weights, estimated by restricted least squares, must sum to 1.0.
Note: Annualized logarithmic growth rate is 400 log. Weights, estimated by restricted least squares, sum to 1.0.
The weights on the monthly “bridge equation” models generally go up as we approach the date of the GDP release. Note: All forecasts are annualized quarterly log growth rates [400 log] except inventories.
We have maintained real‐time forecasts of GDPNow since 2011q3. GDPNow forecasts have been more volatile than the Blue Chip consensus over this period. Blue Chip consensus forecasts have been slightly more accurate on average than GDPNow. Improvements have been made to GDPNow since 2011 (particularly with inventory and net exports forecasts) and after 2011q4, GDPNow has been slightly more accurate than the Blue Chip survey. Forecast errors of initial BEA estimates of quarterly GDP growth
Actual and final forecasted values of initial BEA estimates of quarterly GDP growth
Quarterly percent change (SAAR)
6
Percentage points
3
GDPNow model (last forecast)
5
4
Blue Chip Economic Indicators (last forecast)
“Advance” estimate of GDP growth
2
Average absolute forecast error since 2011:Q3
Blue Chip: 0.61 ppt.
GDPNow : 0.66 ppt.
Root mean square forecast error since 2011:Q3
Blue Chip: 0.77 ppt.
GDPNow : 0.89 ppt.
Blue Chip Economic Indicators (last forecast)
1
3
2
0
1
-1
0
GDPNow model (last forecast)
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2011 2012 2013 2014 2015
-2
-1
2011201220132014201520162017201820192020202120222023202420252026
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2011
201220132014201520162017201820192020202120222023202420252026
2011 2012 2013 2014 2015
The BEA decomposes annualized quarterly real GDP growth into contributions from its subcomponents %
⋯
A similar decomposition is done with GDPNow and, with some modest assumptions, can be applied to either Blue Chip Economic Indicators or Survey of Professional Forecasters GDP growth nowcasts as well
%
Therefore, one can relate the average squared GDP growth forecast error over the 2011q3‐2015q2 period to the forecast errors of component contributions with: 1
16
%
%
Mean square forecast error of Real GDP growth
1
16
Mean square forecast error of contribution i
2
1
16
Mean cross product of errors of ith and jth contributions
13
Fixed effects regression to estimate average accuracy of GDP nowcasts for individual Wall Street Journal Economic Forecasting Survey panelists.
Squared forecast error of ith panelist
%
,
%
,
Time fixed effect: Normalized to sum to 0 over 2011q3‐2015q2 sample period
Individual fixed effect for ith panelist
Fixed effects regression to estimate average disagreement with WSJ survey consensus GDP nowcast for individual Wall Street Journal Economic Forecasting Survey panelists.
%
,
%
,
Squared forecast difference between WSJ survey consensus and ith panelist
,
GDP nowcasts: Accuracy and distance from consensus forecast of both GDPNow and individual panelist forecasts from the Wall Street Journal Forecasting Survey over the 2011q3‐2015q2 period.
Average accuracy
Individual panelists
Average accuracy
Accuracy predicted from discrepancy
WSJ survey consensus forecast
WSJ survey consensus forecast
Individual panelists
Accuracy predicted from discrepancy
Atlanta GDPNow
Atlanta GDPNow
Average discrepancy
Average discrepancy
Average accuracy
•
Individual panelists
Accuracy predicted from discrepancy
WSJ survey consensus forecast
Since 2011q3, individual panelists from the WSJ survey whose forecasts are closest to the consensus (on average) tend to be among the most accurate (on average). •
Average discrepancy
Atlanta GDPNow
GDPNow forecasts bucks this trend
•
Compared to other WSJ forecasters, it has tended to be relatively far away from the consensus forecast.
•
But it has been about as accurate as the average individual forecast. It has been less accurate the consensus forecast.
GDPNow – An Early Indicator of Economic Activity
‐Pat Higgins
AUBER 2015 Fall Conference
October 12, 2015
Disclaimer: The views expressed here are the presenter’s and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System.