The Atlanta Fed's macroblog provides commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues.
- BLS Handbook of Methods
- Bureau of Economic Analysis
- Bureau of Labor Statistics
- Congressional Budget Office
- Economic Data - FRED® II, St. Louis Fed
- Office of Management and Budget
- Statistics: Releases and Historical Data, Board of Governors
- U.S. Census Bureau Economic Programs
- White House Economic Statistics Briefing Room
February 07, 2017
Net Exports Continue to Bedevil GDPNow
Real gross domestic product (GDP) grew at an annualized rate of 1.9 percent in the fourth quarter, according to the advance estimate from the U.S. Bureau of Economic Analysis (BEA), 1.0 percentage point below the Atlanta Fed's final GDPNow model projection. This was a sizable miss relative to other forecasts. Both the consensus estimate from the January Wall Street Journal Economic Forecasting Survey and the January 20 staff nowcast from the New York Fed were expecting 2.1 percent growth last quarter.
The miss was also large relative to the historical accuracy of the GDPNow model. As the table below shows, almost all of GDPNow's error for fourth quarter growth was concentrated in real net exports. For the other broad subcomponents, GDPNow was more accurate than usual, as the last two columns of the table show. But net exports subtracted 1.70 percentage points from real GDP growth last quarter, whereas GDPNow forecasted they would only reduce growth by 0.64 percentage points. All but 0.02 percentage points of this error was in the "goods" category as opposed to services.
Three months ago, I wrote a macroblog post showing that nearly all of GDPNow's 0.8 percentage point error for third-quarter growth was concentrated in goods net exports. That analysis explained how GDPNow's goods net exports forecast is a weighted average of two forecasts. One of these forecasts is a "bean counting" model that uses monthly source data on nominal values and price deflators for goods imports and exports. The other is a quarterly econometric model that uses subcomponents of real GDP for prior quarters. In the GDPNow model, the "bean counting" model gets nearly 60 percent of the weight just before the advance GDP release.
To see how this approach matters for the GDP forecast, the following chart shows the "real-time" forecasts of the contribution of goods net exports to growth just before BEA's advance GDP estimate from the two models alongside the advance estimate of the contribution and the final GDPNow forecast.
We see that the "bean counting" forecast has been much more accurate than the quarterly econometric forecast, particularly for the last two quarters of 2016. Not surprisingly given its name, the "bean counting" model was able to largely capture the 0.75 percentage points that soybean exports contributed to third-quarter real GDP growth and the just over 0.5 percentage points they likely subtracted from fourth-quarter growth. The econometric model was not.
The final forecasts of goods net exports from the "bean counting" model have also been more accurate than GDPNow since forecasts were first posted online in mid-2014. Does this imply that an alternative "bean counting" version of GDPNow would be preferable? The answer is less obvious than you might think. Not putting any weight on the quarterly econometric model for any GDP subcomponents yields an average error for GDP growth (without regard to sign) of 0.635 percentage points, and the same statistic for GDPNow is 0.589 percentage points. This is despite the fact that the "bean counting" approach has been more accurate than GDPNow in its forecasts of net exports and about as accurate, on balance, for the other GDP subcomponents.
The final forecast of real GDP growth last quarter of this alternative "bean counting" model was 2.8 percent—only slightly more accurate than GDPNow. (For each GDP subcomponent, I include the "bean counting" and quarterly econometric model forecasts in this excel spreadsheet.)
However, if variants like the aforementioned "bean counting" approach continue to outperform the GDPNow model in one or more dimensions, we may consider regularly reporting their forecasts along with the GDPNow forecast.
- Labor Supply Constraints and Health Problems in Rural America
- Building a Better Model: Introducing Changes to GDPNow
- How Ill a Wind? Hurricanes' Impacts on Employment and Earnings
- When Health Insurance and Its Financial Cushion Disappear
- What Is the "Right" Policy Rate?
- Is Poor Health Hindering Economic Growth?
- Behind the Increase in Prime-Age Labor Force Participation
- An Update on Labor Force Participation
- Another Look at the Wage Growth Tracker's Cyclicality
- GDPNow's Second Quarter Forecast: Is It Too High?
- November 2017
- October 2017
- September 2017
- August 2017
- July 2017
- May 2017
- April 2017
- March 2017
- February 2017
- January 2017
- Business Cycles
- Business Inflation Expectations
- Capital and Investment
- Capital Markets
- Data Releases
- Economic conditions
- Economic Growth and Development
- Exchange Rates and the Dollar
- Fed Funds Futures
- Federal Debt and Deficits
- Federal Reserve and Monetary Policy
- Financial System
- Fiscal Policy
- Health Care
- Inflation Expectations
- Interest Rates
- Labor Markets
- Latin America/South America
- Monetary Policy
- Money Markets
- Real Estate
- Saving, Capital, and Investment
- Small Business
- Social Security
- This, That, and the Other
- Trade Deficit
- Wage Growth