Unexpectedly Intriguing!
May 11, 2011

It may surprise you, but since we first introduced the "Modified Limo" method for forecasting what GDP will be a quarter ahead of time, we've never gotten around to making a tool that you can use to do our math!

Today, we're fixing that problem and doing just that! To use our tool with U.S. data, you'll need to get three pieces of data from the Bureau of Economic Analysis, which you'll find in Table 3 of the most recent GDP data release the agency has issued:

BEA GDP News Release, Table 3 (2011Q1 Advance Release)

Here, you'll be specifically interested in three values: the real GDP data for the three most recently completed quarters, which is what we've circled in the excerpted image above for the most recent report which, at this writing, shows the advance estimate of U.S. inflation-adjusted GDP through the first quarter of 2011.

Next, enter that data into the tool below. And then click the "Calculate" button. Really! That's all you need to do, because forecasting GDP is that easy!

Previous Quarters Inflation-Adjusted GDP Data
Input Data Values
Three Quarters Ago (Billions of "Chained" U.S. Dollars)
Two Quarters Ago (Billions of "Chained" U.S. Dollars)
Most Recent Quarter (Billions of "Chained" U.S. Dollars)


Next Quarter's Inflation-Adjusted GDP Estimate
Calculated Results Values
"Modified Limo" Estimate (Billions of "Chained" U.S. Dollars)

Using our default data, which coincides with the BEA's third estimates for inflation-adjusted GDP in the U.S. for the second, third and fourth quarters of 2010, our "modified limo" method would anticipate that real GDP in the next quarter, 2011Q1, will be $13,475.2 billion chained 2005 U.S. dollars. As you can see from the BEA's advance estimate for the first quarter of 2011, that's really close to their number of $13,438.8 billion.

The real comparison however will be when the BEA releases its third estimate of GDP for the first quarter of 2011, which as of this writing, will occur on 24 June 2011.

Notes

While our math is built using the finalized estimates for each quarter's GDP recorded by the BEA, it can be used with the BEA's advance and preliminary estimates to get a sense of where GDP will be in two quarters time. Because these estimates can change however, you should expect that those future projections will change as well.

Our "modified limo" method is least accurate when the economy is effectively "going around a corner". By that, we mean when the economy begins to worsen after a period of growth or when the economy begins to improve after a downturn, which you can see in our chart showing GDP data since 2002 below:

Real GDP vs Climbing Limo Forecast vs Modified Limo Forecast, 2002-Q1 Through 2011-Q1

You can also see in the chart above that over time, the "modified limo" technique is self-correcting. Even if it goes off target, it will eventually go back to be either on target or nearly so. Generally speaking, the "modified limo" estimate will almost always be within two percent of the actually recorded value.

The "modified limo" method works because of the "inertial" nature of GDP - it tends to follow a trajectory defined by a simple linear function of time. Ivan Kitov has a neat discussion of the data supporting that contention in 1000 Arguments Against the Solow Growth Model.

Labels: , , ,

About Political Calculations



blog advertising
is good for you

Welcome to the blogosphere's toolchest! Here, unlike other blogs dedicated to analyzing current events, we create easy-to-use, simple tools to do the math related to them so you can get in on the action too! If you would like to learn more about these tools, or if you would like to contribute ideas to develop for this blog, please e-mail us at:

ironman at politicalcalculations.com

Thanks in advance!

Recent Posts

Applications

This year, we'll be experimenting with a number of apps to bring more of a current events focus to Political Calculations - we're test driving the app(s) below!

Most Popular Posts
Quick Index

Site Data

This site is primarily powered by:

This page is powered by Blogger. Isn't yours?

Visitors since December 6, 2004:

CSS Validation

Valid CSS!

RSS Site Feed

AddThis Feed Button

JavaScript

The tools on this site are built using JavaScript. If you would like to learn more, one of the best free resources on the web is available at W3Schools.com.

Other Cool Resources

Blog Roll

Market Links
Charities We Support
Recommended Reading
Recommended Viewing
Recently Shopped

Seeking Alpha Certified

Archives
Legal Disclaimer

Materials on this website are published by Political Calculations to provide visitors with free information and insights regarding the incentives created by the laws and policies described. However, this website is not designed for the purpose of providing legal, medical or financial advice to individuals. Visitors should not rely upon information on this website as a substitute for personal legal, medical or financial advice. While we make every effort to provide accurate website information, laws can change and inaccuracies happen despite our best efforts. If you have an individual problem, you should seek advice from a licensed professional in your state, i.e., by a competent authority with specialized knowledge who can apply it to the particular circumstances of your case.