Juggling Dynamite

This morning more dour news for Canada: Canadian Wholesale Sales in January fell by the most in 6 years and oil and most other commodities are continuing their downdraft on tumbling global demand and soaring inventory. West Texas Crude (WTI) is flirting with a fresh cyclical low around $42 a barrel and the once hot, and commensurately over-valued Calgary realty market, has begun its comeuppance.

Energy accounts for some 10% of Canadian GDP directly (significantly more indirectly) and it is in full on contraction. Manufacturing that never did recover from the 2008 recession, is not picking up the slack so far, despite the plunging loonie. This leaves bullish bets focused on the last leg of the Canadian growth stool: the most over-valued sector in the land.  Indeed one of the most over-valued in the world: Canadian real estate. Recently accounting for 13% of Canadian GDP, continued strength here is critical.

The global economy is in the midst of a downturn of unusual scale. Coming off the unprecedented credit-highs of the past 8 years will be sobering, to say the least.

What proved support for key commodities in the 2009 “V” bottom engineered by monetary experiments, may prove nothing more than a mirage this time.

Central banks can hold their fingers in dykes for some time, but once digits are fully committed, the power of free market forces and price discovery overwhelms once more.

The growth rate of real gross domestic product (GDP) is a key indicator of economic activity, but the official estimate is released with a delay and routinely revised in retrospect, quarters and years after the original ‘guesstimates’. To stay ahead of the pack it is critical to devise tools and methods for making more real time assessments.

With this in mind, the Atlanta Fed’s new GDPNow is designed as a forecasting model “nowcast” of the official estimate prior to its release. Here is the latest read for Q1 in green versus previous estimates and the consensus views:

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2015 was 0.3 percent on March 17, down from 0.6 percent on March 12. Following yesterday morning’s industrial production release from the Federal Reserve Board that reported a 17 percent decline in oil and gas well drilling in February, the nowcast for first-quarter real nonresidential structures investment growth fell from -13.3 percent to -19.6 percent. See: GDP Now- Federal Reserve of Atlanta