The Atlanta Fed has developed a new forecasting tool called GDPNow. It actually is an old tool or technique that they are employing to help provide good estimates of quarterly GDP. What they do is actually very simple. They take the 13 sub-components that are used in the GDP estimate and track them in real time to provide a rolling update of what should be the best GDP estimate as data comes out. Many forecasters use this method, but it is not readily available to the investor public. Anything that makes forecasting easier and provides details on GDP components is a useful tool.
The Atlanta Fed provides source data, forecasts, and model parameters of the sub-components in an easy to read spreadsheet. This tool can be used in a number of ways. First, it can give an early heads-up on GDP estimates. Second, it can provide a comparison against the Blue Chip consensus forecasts. This can form a rolling estimate of the difference between expected forecasts and a best guess based on components. This is a good estimate of potential macro growth shocks. For example, the GDPNow forecast has been showing consistent weakness versus the Blue Chip estimates and is suggesting a slowing economy for the last eight weeks. There are no delays with GDPNow. The chart above will cause a disciplined investor to hold more bonds under the threat a GDP estimate that will come in weaker than forecasted.
This is a simple quick tool with a rich foundation for helping with GDP forecasts. It is a worth a close look.
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