Forecasts for Q2 GDP: Its all about the inputs…

Posted on June 4, 2018 by Gemmer Asset

The Atlanta Fed, who maintains a model that attempts to estimate future US GDP data releases came out with their latest Q2 forecast:

 

1

 

This estimate is definitely an outlier.  Consensus among top economists is that growth will come in around 3.2% (blue line above).  And the New York Fed’s own model is predicting a 3.3% print.  If the Atlanta Fed’s 4.8% number holds however, it would be the best real quarterly growth since 2014. Great news, right?  Only time will tell… The type of model used in their forecast is typically very sensitive to their inputs, especially early in the period being modeled.  As more data comes in, the models’ predictive power gets stronger, as the below chart shows.

 

2

 

We’re about 53 days from the Q2 advance release, which would put the error at about +/- 0.8%.

 

When the Atlanta Fed estimate comes in high (or low) its been because the first few inputs available are on the positive side, so we’d argue for not putting a lot of confidence in the figure at that stage. This latest release is a bit different however. It is the 17th update for Q2… Granted things can change on a dime with these models and actual growth could be dramatically different than 4.8%, but its worth noting that after an initially high 4.1% forecast, subsequent estimates have been adjusted higher not lower.

 

Its also worth pointing out the Atlanta Fed’s track record. The average absolute error since they began the model in 2011 is +/- 0.6%. If the 4.8% figure misses to the high side, it would still put the estimate almost 100 basis points above consensus (assuming the average error).

 

It will be interesting to watch how the estimate changes over the coming weeks as more data comes in…

 

MM Email Sig

 

Published by Gemmer Asset Management LLC The material presented (including all charts, graphs and statistics) is based on current public information that we consider reliable, but we do not represent it is accurate or complete, and it should not be relied on as such. The material is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It does not constitute a personal recommendation or take into account the particular investment objective, financial situations, or needs of individual clients. Clients should consider whether any advice or recommendation in this material is suitable for their particular circumstances and, if appropriate, see professional advice, including tax advice. The price and value of investments referred to in this material and the income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchange rates could have adverse effects on the value or prices of, or income derive from, certain investments. No part of this material may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed without the prior written consent of Gemmer Asset Management LLC (GAM). Any mutual fund performance presented in this material are used to illustrate opportunities within a diversified portfolio and do not represent the only mutual funds used in actual client portfolios. Any allocation models or statistics in this material are subject to change. GAM may change the funds utilized and/or the percentage weightings due to various circumstances. Please contact GAM, your advisor or financial representative for current inflation on allocation, account minimums and fees. Any major market indexes that are presented are unmanaged indexes or index-based mutual funds commonly used to measure the performance of the US and global stock/bond markets. These indexes have not necessarily been selected to represent an appropriate benchmark for the investment or model portfolio performance, but rather is disclosed to allow for comparison to that of well known, widely recognized indexes. The volatility of all indexes may be materially different from that of client portfolios. This material is presented for informational purposes. We maintain a list of all recommendations made in our allocation models for at least the previous 12 months. If you would like a complete listing of previous and current recommendations, please contact our office.

Categories:

Bookmark and Share