Friday, October 15, 2021

October Surprise?

The Atlanta Fed has a mathematical model to estimate GDP on a running basis. It’s called GDPNow, and this is how it is described:

GDPNow is a nowcasting model for gross domestic product (GDP) growth that synthesizes the bridge equation approach relating GDP subcomponents to monthly source data with factor model and Bayesian vector autoregression approaches.

Good luck with that explanation if you do not have a degree in statistics. But you don’t need one if all you care about is its forecasting accuracy.

The current GDPNow forecast for 3Q2021 real GDP growth is just 1.3% annualized, way below the 6.5% expected by “blue chip” economists - see chart below.  This high number is what Wall Street is betting on as well, given the heroic equity P/Es. It is interesting to observe that GDPNow was also projecting a little over 6% growth as recently as late August, and then declined sharply within weeks.

This is the detailed evolution of the GDPNow estimate:

So, just how accurate is the forecast? Excluding the COVID quarters which witnessed huge statistical volatility, the GDPNow model is very accurate, particularly nearer the release of the official GDP numbers - see chart.

The Bureau of Economic Analysis will release its estimate for 3Q21 GDP on Oct. 28, just 13 days from today. Given the GDPNow track record above, it is highly unlikely that it will err by more than 0.5%-1% in either direction, thus producing an October surprise.


  1. Looking at the figures, it gives a very heavy weight to the latest numbers, which are trade related... These would be more pulled down by events in China rather than U.S.... so I would give it a slight upward correction... and go with an Oct number of 3.5%.. just for fun. =)

    1. If you look closely at the evolution, the big drops are related to manufacturing and auto sales :)

    2. oh dear.... nvm; you guys basically dun make anything and anyone who wants a car has got one. 3.5% it is. =)

      btw, credit where credit is due; our Hell seems to have been right about the inflation stuff!

  2. Hell Cometh:

    I agree with most of Hell's analysis; which I summarize below: Given current economic conditions, there is likely to be a major stock market correction, with a corresponding rise in interest rates, possibly accompanied by inflation.

    Lets think about the implications. If the above is true; both house, senate and presidency are likely to go to the republicans. If said republican is Trump, it may well be the last election America ever has... (I feel that Trump was never that evil; the democrats made him into a devil to win elections. Jokes on them; if Trump wins, he will remember).

    Therefore; the democratic party is faced with two choices. A) Change current economic conditions by printing accelerating amounts of money. B) Impeach the leadership, disavow their actions and take back the initiative from Trump.

    I wish they would do B)... but I suspect they will do A).

    Best Regards,

  3. I suspect this is true; if so, it explains a lot of why the democrats are losing support (see comment section).

  4. I remember the Chevron/Ecuador legal fight from a documentary years ago. I’m really surprised by the horrific details, though..

    1. hmm... I went to read more after that.....

      Basically, Chevron found an Ecuadorian judge, paid for him to start a new life in the US; the Ecuadorian judge then (rightly or wrongly) testified that Donziger bribed him to rule Chevron guilty... Chevron has then used that ruling to make Donziger's life hell...