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New York Fed ‘Nowcast’ Predicts GDP to Surge 16.8 Percent in Third Quarter

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New York Fed ‘Nowcast’ Predicts GDP to Surge 16.8 Percent in Third Quarter

Near-real-time economic models at the Federal Reserve banks in New York and Atlanta predict America’s economy will experience surging, double-digit growth in the third quarter of this year, following a record-shattering collapse of minus 32.9 percent in the second quarter, when business activity ground to a halt due to the pandemic.

Called “nowcasts,” the predictions are model-based, running estimates of real GDP growth based on various data points and are neither an official forecast of the Atlanta Fed nor of the New York Fed. But the Atlanta Fed model’s latest estimate, called GDPNow and released on July 31, is for the economy to rebound by a seasonally-adjusted, annualized 11.9 percent in the third quarter.

The New York Federal Reserve’s nowcast model, which was similarly updated and announced on July 31, expects GDP to rebound by 16.8 percent in the third quarter.

New York Fed ‘Nowcast’ Predicts GDP to Surge 16.8 Percent in Third Quarter

America’s economy suffered a historic contraction in the second quarter of this year, with the Commerce Department’s Thursday announcement showing that GDP plumbed depths more than three times lower the previous all-time drop of 10 percent in the second quarter of 1958.

“Markets were pretty much expecting a disastrous number, and they got it. The recovery is going to take time,” said Steven Ricchiuto, chief economist at Mizuho Securities USA.

Most of the drop in GDP took place in April, when business activity was put into deep freeze by lockdowns meant to curb the spread of the CCP (Chinese Communist Party) virus, also known as the novel coronavirus.

New York Fed ‘Nowcast’ Predicts GDP to Surge 16.8 Percent in Third Quarter

Many businesses resumed operations in May, fueling hopes for a quick rebound. But a resurgence of cases, especially in the densely populated South and West, along with weak job numbers, are tempering hopes for quick economic recovery.

The lackluster jobless claims report, released July 30, showed that initial weekly unemployment filings rose for the second straight week after steadily falling from its March peak of almost 7 million. For the week ending July 25, the number of Americans filing jobless claims was 1,434,000, Labor Department figures show (pdf). By comparison, the pre-pandemic peak in new weekly jobless claims in America was 695,000, dating back to 1982.

A relative bright spot in the jobless numbers is the figure for continuing claims, which reflect people who earlier filed an initial claim and now continue to receive unemployment benefits. While the number of workers continuing to collect unemployment spiked by 867,000 during the week ending July 18, about a million workers went off unemployment the week before, so the net number of workers on continuing claims is lower over a two-week period.

Also, the total number of people collecting benefits in all unemployment programs for the week ending July 11 dropped by 1.6 million compared to the previous week.

“We all know that shutting down the economy was going to lead to a very, very sharp contraction in GDP. But there’s also evidence of a sharp rebound as well,” Ricchiuto noted.

The estimates provided by both the Atlanta Fed and New York Fed nowcast models reinforce the view that a strong recovery may well be in the books for America’s economy.

Other data points released Friday paint a mixed picture. American consumers increased their spending by 5.6 percent in June while personal income fell by 1.1 percent, suggesting the U.S. economy may struggling to sustain recovery momentum, especially in places that have seen a surge in CCP virus infections.

Federal Reserve Chairman Jerome Powell on Wednesday flagged his concern the rebound may be weakening.

“All we can say today is that there is evidence in high-frequency data and surveys…It looks like we are seeing a slowdown,” Powell said in a press conference. “It might be short-lived, it might not. The timing seems related to the spike in cases” that began in June, he added.

Most economists and long-term investors, along with the Fed, have said the economic outlook depends largely on the course of the virus.

Reuters contributed to this report.

Follow Tom on Twitter: @OZImekTOM

Focus News: New York Fed ‘Nowcast’ Predicts GDP to Surge 16.8 Percent in Third Quarter

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