This The Atlanta Fed’s now-immediate forecast for the second quarter through July 15 is -1.5% Q/Q SAAR. This tells us what might be a preprint, followed by a follow-up.
figure 1: GDP (black), Goldman Sachs (pink squares), Atlanta Fed GDPNow (green triangles), IHS-Markit (light blue triangles) in billions Ch.2012$, SAAR. Nowcast as of July 15, 2022. Sources: BEA and Goldman Sachs, Atlanta Fed and IHS-Markit, and author’s calculations.
What does this point estimate mean?from Atlanta Fed FAQ:
Since we started tracking GDP growth using a version of the model in 2011, the final GDPNow forecast has an average absolute error of 0.84 percentage points. The root mean square error of the forecast is 1.25 percentage points. These accuracy measures cover preliminary estimates from the third quarter of 2011 to the first quarter of 2022. For further analysis of GDPNow forecast error, see the great articles here and here. We have made some improvements to the model from earlier versions, and model predictions have become more accurate over time (full track record here). When back-tested with revised data, the root mean squared error of the out-of-sample forecast for the model with the same data coverage as analysts prior to the “advance” estimates for the first quarter of 2000 to the first quarter of 2013 is 1.15 percentage points : Fourth quarter. The chart below shows how forecasts become more accurate as the interval between the forecast date and the upcoming GDP date narrows.
Overall, these accuracy metrics did not provide convincing evidence that the model was more accurate than professional forecasters. Compared to other traditional statistical models, this model performs really well.
What does a 1.15 percent RMSE mean. Given that RMSE did not drop significantly 25 to 1 day before the announcement, I will use this number (we are 13 days away from the July 28 release) to calculate the 90% interval for the GDPNow nowcast.
figure 2: GDP (black), Atlanta Fed GDPNow (green triangle) and 90% band (grey+) in billions Ch.2012$, SAAR. Nowcast as of July 15, 2022. Source: BEA Atlanta Fed and IHS-Markit, and author’s calculations.
In other words, it is possible that GDPNow will record positive growth figures (or even more negative growth) in the second quarter.
This history must be treated with caution, as the model has been revised several times.In addition, starting with the April 29 edition, additional steps have been taken to address the complexities of seasonal adjustment and the dynamics associated with the sharp decline in 2020 (see here).
Most recently, forecast errors over the past year were -0.9 ppts, 1.8 ppts, 0.4 ppts, -1.8 ppts.
