BUSINESS CASE: Getting a Jump on GDP

OSOMEDIA/AgeFotostock/SuperStock

GDP matters. Investors and business leaders are always eager to get the latest numbers. When the Bureau of Economic Analysis releases its first estimate of each quarter’s GDP, normally on the 27th or 28th day of the month after the quarter ends, it’s invariably a big news story.

In fact, many companies and other players in the economy are so eager to know what’s happening to GDP that they don’t want to wait for the official estimate. So a number of organizations produce numbers that can be used to predict what the official GDP number will say. Let’s talk about two of those organizations, the economic consulting firm Macroeconomic Advisers and the non-profit Institute of Supply Management.

Macroeconomic Advisers takes a direct approach: it produces its own estimates of GDP based on raw data from the U.S. government. But whereas the Bureau of Economic Analysis estimates GDP only on a quarterly basis, Macroeconomic Advisers produces monthly estimates. This means that clients can, for example, look at the estimates for January and February and make a pretty good guess at what first-quarter GDP, which also includes March, will turn out to be. The monthly estimates are derived by looking at a number of monthly measures that track purchases, such as car and truck sales, new housing construction, and exports.

The Institute for Supply Management (ISM) takes a very different approach. It relies on monthly surveys of purchasing managers—that is, executives in charge of buying supplies—who are basically asked whether their companies are increasing or reducing production. (We say “basically” because the ISM asks a longer list of questions.)

Responses to the surveys are released in the form of indexes showing the percentage of companies that are expanding. Obviously, these indexes don’t directly tell you what is happening to GDP. But historically, the ISM indexes have been strongly correlated with the rate of growth of GDP, and this historical relationship can be used to translate ISM data into “early warning” GDP estimates.

So if you just can’t wait for those quarterly GDP numbers, you’re not alone. The private sector has responded to demand, and you can get your data fix every month.