Article Review
The US economy is well known for the wide range of detailed data that is available through various organizations like the Fed, the Bureau of Labor Statistics, the Bureau of Economic Affairs and many others. The world’s largest economy has a high reputation on the quality and reliability of the data that it provides. Though the data provided by the government organizations have a high degree of accuracy the data is not a real time one. This is because the organizations need updated statistics on the various macroeconomic variables. For this reason there is a time lag in the data published by the aforementioned organizations. But the investors require updated and real time data to make an edge over their competitors to make the most out of their investments. For this reason a number of private organizations provide GDP forecasts. It has seen that most of the Wall Street banks have their own method of making estimates on GDP and other important macroeconomic variables .
The estimates of the private organizations have not found wide popularity among the investors as the Fed issues GDP forecasts as well which is believed to be more reliable. The Federal Reserve Bank of Atlanta regularly publishes its GDP estimates known as the GDPNow. The GDPNow has gained widespread popularity among the investing organizations that advise its clients on the direction of investment to be made. The investor firms rely greatly on the estimates of the Atlanta Fed. It has been observed that the Atlanta Fed’s estimates have found growing number of searches through the Google search engine in recent times. But very recently confusion has arisen among the investors as the Federal Reserve Bank of New York has announced a new GDP tracker. The New York Fed claims that it has used a new tool for the GDP estimates which has a higher degree of accuracy. The estimates of the New York and Atlanta Feds vary widely. While the New York Fed has forecasted a growth rate of 1.1 per cent in the first quarter, the Atlanta Fed has estimated that the economy is going to grow at a slower pace in the first quarter at a rate of 0.1 per cent. This divergence in the two estimates has created confusion among the investors who are unable to decide which estimate to follow to get a better gauge of the economy. Economic analysts have advised the investors to use an average of the two estimates for the time being. The analysts need some time to observe the two estimates and then come to conclusion about which is a better estimate.
Let us now depict the fix that is facing the investors, in a graphical form. The New York Fed estimates a higher GDP growth in the first quarter as it expects a higher Aggregate Demand (AD) as shown by the ADnw curve. The Atlanta Fed on the other hand makes a conservative estimate of the GDP as it expects the AD to be lower. This is represented by ADatn which is to the left of ADnw. The New York Fed shows a higher GDP at Ynw while the Atlanta Fed shows a lower GDP estimate at Yatl.
ADnw
ADatl
Yatl Ynw Y
Works Cited
Burne, Katy, Ben Eisen and Paul Vigna. "Fed Banls Spar Over GDP Data." The Wall Street Journal 12 April 2016: 3. English.
Mankiw, G.N. Macroeconomics. Macmillan, 2013.
