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Science: Interesting approach to GDP forecasting

Thoughts ahead of Q3 GDP

Friday’s Q3 GDP numbers, writes The Automatic Earth blog (TAE) and CMI’s DShort (Consumer Metrics Institute), are not all that important. The “real” data won’t be known until well after the November 3 mid-term elections, when the BEA publishes its first revision. Yet, ever determined to reconcile the variances in individual data that cloud the direction in which the economy is headed, TAE & Consumer Metrics Institute both report on some of their latest research collaborations. Of one thing they appear sure, by year end there should be little doubt about the future direction of the economy. It will most likely be on a firm negative path. The term “double-dip” may once again be in vogue, but my guess is that we’ll only be seeing what was really behind the curtains all the time.

(edited excerpt)

We can’t deny that the CMI 91-day index, when shifted, has an eerie compliance with the BEA GDP numbers. Still, when we look at the 183 and 365-day graphs, we see a much smoother “motion”. They take away much of the volatility that’s inherent in the 91-day.

And if I can be bold for a moment, I would say chances are that no matter what number is published tomorrow, the BEA Q3 GDP will be very close to that (graphic depicted above) after all revisions have been done. Sadly, we won’t know until say, Christmas. If we look at what the 365-day would appear to say about Q4, I would say we come to about -0.5% (average the graph over the 3-month window).

: GDP Outlook.PNG

I am convinced that this is a far more solid way of interpretation of the data than the “bare” comparison of BEA and the CMI 91-day index, because both, on account of their limited timeframes, are subject to high volatility.”

So what are they saying? Looks to me like we’re headed for the crapper!

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