The Scariest Spreadsheet In Fed Possession Revealed

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Yesterday we reported that over the past few weeks, something very disturbing has taken place at the Atlanta Fed Center for Quantitative Economic Research, which keeps a model, called GDPNow, that mimics the methods used by the BEA to estimate real GDP growth.

According to the AtlantaFed, "the GDPNow forecast is constructed by aggregating statistical model forecasts of 13 subcomponents that comprise GDP. Other private forecasters use similar approaches to “nowcast” GDP growth. However, these forecasts are not updated more than once a month or quarter, are not publicly available, or do not have forecasts of the subcomponents of GDP that add “color” to the top-line number. The Atlanta Fed GDPNow model fills these three voids."

In other words, what the AtlantaFed has done is recreate the bean-counting methodology used by the BEA, and all other forecastsers, however instead of using monthly data update cadence, it does so with data in real time.

This is a problem because as we showed yesterday, this most real-time model of GDP estimation, is showing something scary: a 1.2% GDP in Q1 compared to consensus estimates in the mid-2% range, and a tumble of more than 1% to just what this same model predicted Q1 GDP would be one month ago!




What's going on here, and how is it possible that there is such a massive disconnect between the one, arguably most accurate and updated Fed forecasting model and everyone else.

Courtesy of an excel spreadsheet called, logically enough, GDPTrackingModelDataAndForecasts.xlsx (link), we can find the answer.
While we urge readers to play around with the model at their leisure, here is the bottom line: a snapshot of the weekly evolution of the summary tab, which shows precisely which line item is leading to the collapse in Q1 GDP, from 2.3% as of February 13 to half that as of March 2.





For those who are used seeing it on a cumulative basis, here is the other summary table that also lays out how the AtlantaFed reaches its shocking 1.2% GDP number:



What becomes immediately apparent is that while there has been a sharp deterioration across most sources of economic output including government spending, which is now expected to detract -0.8% from growth, Net Exports, and residential investment, it is the collapse in "Structures", aka non-residential investment, best known as the Capital expenditures spending or lack thereof by US shale companies on such items as offices and extraction structures, including oil and gas wells this is about to pummel US economic growth.

Incidentally, we previewed all of this in "The Next Victim Of Crashing Oil Prices: Housing" and "Houston, You Have A Huge Problem: One-Sixth Of US Office Space Under Construction Is In This Texas City."

Digging down into the underlying data, which feeds through the weekly updates of Atlanta Fed staffer Patrick Higgins (the cell comments are his), we have confirmation of what is about to "shock" everyone when the BEA reports its advance GDP report in two months time: it is all non-res structures, and especially petroleum and natural gas wells, which will (or rather already have) unleashed a full-blown investment shock for the US economy.


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http://www.zerohedge.com/news/2015-03-04/scariest-spreadheet-fed-possession-revealed