May 10, 2019: Weekly Forecasting Update: Little Change

Real final sales to domestic purchasers FRED St Louis Fed

Federal Reserve Bank of New York: Nowcasting Report: “The New York Fed Staff Nowcast stands at 2.2% for 2019:Q2. News from the JOLTS, CPI, PPI, and international trade releases left the nowcast for 2019:Q2 broadly unchanged…

Key Points:

The right response to almost all economic data releases is: Nothing has changed—your view of the economic forecast today is different from what it was last week, last month, or three months ago in only minor ways.

What has changed in the past week is: The falling-apart of Trump’s trade negotiating strategy with China will harm Americans and may disrupt value chains, but the effects are unlikely to be clearly visible in the data flow.

It is still the case that U.S. potential economic growth continues to be around 2%/year, that inflation is unthreatening, and tha trhe donomy is closing in but not yet at full employment.

It is also the case that:

  • There are still no signs the U.S. has entered that phase of the recovery in which inflation is accelerating.
  • There are still no signs of interest rate normalization: secular stagnation continues to reign.
  • There are still no signs the the U.S. is at “overfull employment” in any meaningful sense.
  • The Trump-McConnell-Ryan tax cut delivered a substantial short-Term demand-side fiscal stimulus to growth that has now ebbed.
    • (A 3.2%/year rate of growth of final sales to domestic purchasers over the seven quarters starting in January 2017, pushing the level of Gross National Income up by 2.1% from this demand-side stimulus.)
  • The Trump-McConnell-Ryan tax cut has been a complete failure at boosting the supply side through increased investment, and a complete success at making America more unequal.

  • A change from 3 months ago: The Federal Reserve’s abandonment of its focus on policies that are likely to keep PCE chain inflation at 2%/year or lower does not mean that it is preparing to do anything to avoid or moderate the next recession.
  • A change from 1 month ago: The U.S. grew at 3.2%/year in the first quarter of 2019—1.6%-points higher than had been nowcast—but the growth number you want to put in your head in assessing the strength of the economy is the 1.6%/year number that had been nowcast.
  • A change from 1 week ago: The falling-apart of Trump’s trade negotiating strategy with China will harm Americans and may disrupt value chains, but the effects are unlikely to be clearly visible in the data flow.

#macro #forecasting 

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