It is official: whereas Q2 was the most effective quarter for the economic system in a long time, in Q3 it’s now extensively accepted that as we wrote a month in the past, the wheels got here off on account of a “sudden damaging change.”
One would not must look too exhausting to seek out out why: between at present’s catastrophic jobs report, the close to file plunge in client confidence, the troubling contraction in retail gross sales the place stories have missed expectations for 3 months in a row, whether or not it’s because of the finish of stimmies or the current restrictions from the Delta variant, one financial institution after one other took a machete, or within the case of Morgan Stanley, a nuke to their GDP Q3 forecast, with Goldman now anticipating GDP to develop simply by 3.5% this quarter, its second downgrade in a month (it was 8.5% only one month in the past) whereas Morgan Stanley yesterday lower its Q3 GDP to simply 2.9% from 6.5% beforehand.
And whereas banks have been as standard nicely behind the curve, solely catching as much as what our readers already knew one month in the past, the regional Fed have been lifeless final, with the Atlanta Fed’s GDPNow mannequin yesterday lower to simply 3.7% fron 5.3% on Sept.1
So what about that different Fed GDP mannequin, the NY Fed GDP Nowcast? Properly, a shortly take a look at the historic knowledge reveals that whereas the Atlanta Fed has a ridiculously excessive beta, and swings round like a drunken sailor, the NY Fed’s GDP tracker is way more credible and steady.
Or quite manner, as a result of a fast take a look at the Ny Fed’s web site the place the Nowcasting Report is housed now reveals this:
The uncertainty across the pandemic and the resultant volatility within the knowledge have posed a lot of challenges to the Nowcast mannequin. Due to this fact, we’ve got determined to droop the publication of the Nowcast whereas we proceed to work on methodological enhancements to higher handle these challenges.
We discover it odd how the NY Fed didn’t droop its nowcast mannequin on the best way up in late 2020 when the same stage of pandemic confusion was current however when all of the changes have been within the upward route and no person actually cared if they’re correct or not.
There are two methods to interpret this sudden and surprising improvement from a few of the “smartest” economists within the room. Both i) no person is aware of something (which is true for many economists), or ii) the underlying financial knowledge is now so ugly that as an alternative of lipsticking, adjusting and goalseeking it to make it look enticing (on a seasonally adjusted, professional forma foundation after all) in its “tracker”, the NY Fed has merely determined to now not even cowl it.
Our cash is in each i) and ii).
Up subsequent: the BLS suspends its jobs report, ADP suspends its non-public payrolls replace, the BEA suspends its GDP and PCE estimate, and the Dept of Labor suspends its CPI and PPI stories on account of “uncertainty across the pandemic and the resultant volatility within the knowledge.”