Macro Insights

Nowcasting in 2023: a retrospective

As at 13 November 2023

The year 2022 saw a sequence of contractionary shocks hit the global economy. Initially, these took the form of destabilising supply disruptions across global energy and agricultural markets induced by Russia’s invasion of Ukraine. Alongside this, the Federal Reserve, joined by most other major central banks, embarked on the fastest pace of interest-rate hikes since the 1980s. Given this backdrop, at the beginning of 2023 economists saw a 61% chance of an impending US recession.¹

At Fulcrum, to gauge the near-term health of the US economy, we rely on a Bayesian Dynamic Factor Model. This model uses state-of-the-art methods to arrive at a near real-time assessment of economic activity, and several of its key features were incorporated in the New York Fed’s revamped nowcasting model.

SOURCE: Fulcrum Asset Management, Consensus Economics

Note: The thick blue line represents Fulcrum’s median projection for 2023 calendar year growth over time, whilst the dark, lighter, and light blue shaded areas show the 68%, 90% and 95% confidence intervals, respectively. The black dot shows the median projection from Consensus Economics. 

The figure above shows the projections for 2023 calendar year growth produced by our model, alongside the median consensus estimate of a broad range of economists. The latest projections are similar, both in the 2-2.5% range, which is to be expected given that we now have three quarters of official GDP data for 2023. What is more interesting is how these forecasts have evolved: at the start of the year, we were projecting growth around 1.5%, and after strong employment, retail sales and business surveys data, this jumped to above 2% in February and has been almost unchanged since. In contrast, the median consensus moved gradually but significantly higher, starting the year at 0% and ending above 2%.

As discussed above, going into 2023 economists had sound reasons to believe that the economy could slow or even contract outright. Importantly, however, the transmission mechanisms of shocks to the wider economy are highly uncertain, and new shocks are constantly occurring. As such, we prefer to rely on a data-rich model that incorporates the latest economic releases as they arrive. This approach proved its worth in 2023 and will remain a critical tool for our economists and portfolio managers going forward.

About the Author

Any views and opinions expressed are for informational and/or similarly educational purposes only and are a reflection of the author’s best judgment, based upon information available at the time obtained from sources believed to be reliable and providing information in good faith, but no responsibility is accepted for any errors or omissions. Charts and graphs provided herein are for illustrative purposes only. The information contained herein is only as current as of the date indicated, and may be superseded by subsequent market events or for other reasons. Some of the statements may be forward-looking statements or statements of future expectations based on the currently available information. Accordingly, such statements are subject to risks and uncertainties. For example, factors such as the development of macroeconomic conditions, future market conditions, unusual catastrophic loss events, changes in the capital markets and other circumstances may cause the actual events or results to be materially different from those anticipated by such statements. In no case whatsoever will Fulcrum be liable to anyone for any decision made or action taken in conjunction with the information and/or statements in this press release or for any related damages.  Reproduction of this material in whole or in part is strictly prohibited without prior written permission of Fulcrum Copyright © Fulcrum Asset Management LLP 2024. All rights reserved.


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