Has The Fed Already Lost?
Increasingly we live in a world of Now. Instantaneous access to digital real time data and news has simply become a given in our lives of the moment.
You may be surprised to know that the Federal Reserve has taken notice.
GDPNow
To the point, GDP data that routinely comes to us from the US Bureau of Economic Analysis (BEA) arrives after the fact. From the perspective of the financial markets and investors — who are always looking ahead and trying to discount the future — GDP data is “yesterday’s news.” Moreover, revisions to quarterly GDP can come to us three months after the original data release (with final revisions sometimes years later), essentially becoming an afterthought in terms of relevance to decision making.
Recently the Atlanta Federal Reserve has developed what they term a GDPNow model. This model essentially mimics the methodology used by the BEA to estimate real GDP growth. The GDPNow forecast is constructed by aggregating statistical model forecasts of the 13 subcomponents that comprise the BEA’s GDP calculation.
Private forecasters of GDP, such as the Blue Chip Consensus, use similar approaches to “forecast” GDP growth. These forecasts are usually updated monthly or quarterly, but many are not publicly available, and many do not specifically forecast the subcomponents of GDP that speak to the character of the top-line number.
The Atlanta Fed GDPNow model acts to circumvent these shortcomings. By replicating the key elements of the data used by the Bureau of Economic Analysis, the new Atlanta Fed GDPNow model forms a relatively precise estimate of what the BEA will announce for the previous quarter’s GDP prior to its official announcement. For now, the model is still young, but it’s beginning to be discovered more widely among the analytical community.
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