Published Friday, November 25, 2022 at: 7:54 PM EST
A Federal Reserve Bank of Atlanta algorithm indicates the economy is experiencing spectacular growth this quarter, while a survey of leading economists indicates the economy currently is growing at a fractional pace.
Consensus forecasts of economists are far from perfect but have been more reliable than the GDPNow algorithm at predicting the quarterly growth rate of U.S. gross domestic product for years. In fact, the GDPNow forecast has been wildly wrong at times over the years. For the last two quarters, however, a period marked by high volatility, the algorithm has been more accurate in predicting growth real-time.
The Fed’s GDPNow forecast is updated two or three hours after the government releases economic data throughout every quarter. GDPNow’s prediction is designed to come closer, as the end of a quarter nears, to the final growth rate announced by the BLS. The Federal Reserve Bank makes it clear that GDPNow is “not an official forecast of the Atlanta Fed.” It’s a running estimate of real GDP growth. No subjective adjustments are made to GDPNow. Rather, the estimate is based solely on the mathematical results of the algorithm.
Although the algorithm’s track record is mixed, it was more reliable than the human experts in the second of 2022 and again in the third quarter, a six-month period beset by multiple anomalies, including supply chain disruption, declining demand for inventory, and an aggressive succession of Federal Reserve rate hikes.
We’re not saying that the GDPNow forecast is a breakthrough in predicting the economy, but the algorithm has been more accurate at predicting that rate of growth in quarterly gross domestic product during this unusual period of high volatility in financial markets as well as the real economy. Tracking developments like this is just one way we help investors amid an ever-changing world.
Thanksgiving shortened the week on Wall Street, with no trading on Thursday and a 1 p.m. ET close on Friday. The Standard & Poor’s 500 stock index ended the week at 4,026.12, losing -0.03% from Thursday, and up +1.53% from a week ago. The index is up +79.94% from the March 23, 2020, bear market low and -16.06% lower than its January 3, 2022, all-time closing high.
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This article was written by a veteran financial journalist based on data compiled and analyzed by independent economist, Fritz Meyer. While these are sources we believe to be reliable, the information is not intended to be used as financial advice without consulting a professional about your personal situation.
Indices are unmanaged and not available for direct investment. Investments with higher return potential carry greater risk for loss. Past performance is not an indicator of your future results.
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