Nowcasting Wisconsin GDP | Econbrowser

Suppose it’s the tip of August, and one wish to get the most effective estimate of Wisconsin actual GDP for Q2. As of August, solely Q1 Wisconsin GDP is offered. What’s the most effective guess of of Q2 GDP, conserving in thoughts the variety of month-to-month indicators on the state stage is way decrease than that for the Nation. Right here’s my tentative reply.

Determine 1: Wisconsin GDP (daring black), random stroll with drift forecast (inexperienced), error correction mannequin (purple), +/- one normal error band (grey strains), all in mn.Ch.2017$ SAAR. Supply: BEA, creator’s calculations.

Forecast based mostly upon these information, and this regression:

Determine 2: Wisconsin GDP to US GDP, in logs (blue, left scale), US GDP in log first variations (tan, proper scale), Wisconsin NFP in log first variations  (inexperienced, proper scale), all s.a. 2024Q3 WI NFP remark is the typical for July, August. Supply: BEA, BLS, creator’s calculations.

Δy^WI_t= 0.720 + 1.130Δy^US_t – 0.268(y^WI_t-1-y^US_t-1) + 1.428Δn^WI_t

Adj-R² = 0.78, SER = 0.0036, N=13, DW=1.85, pattern 2021Q1-2024Q1. Daring face signifies statistical significance at 10% msl, utilizing Newey-West normal errors.

13 observations looks as if a slender thread to hold a nowcast upon. Sadly, this specification fails utterly for the complete pattern of accessible information (2005Q1-2024Q1, the place I’ve spliced the true GDP sequence in Ch.2012$ and Ch.2017$). Pre-pandemic, the error correction phrases has a optimistic signal; that is true, no matter whether or not the pandemic recession and fast aftermath (2020Q1-2020Q4) is omitted or not. Relatively, a single regressor dominates (US GDP development). Right here’s a comparability:

Determine 3: Wisconsin GDP (daring black), full-sample US GDP based mostly (gentle blue), error correction mannequin (purple), Wisconsin DoR Financial Outlook forecast (chartreuse), all in mn.Ch.2017$ SAAR. Supply: BEA, DoR, creator’s calculations.

Whereas the distinction between the 2 nowcasts appears small, the implied distinction in q/q annualized development charges is noticeable: 2.1% vs. 1.9%.

The discharge of Wisconsin GDP is slated for tomorrow.