Why Does GDPNow Model Sometimes Move Counter To Economic Releases?

 I am sometimes puzzled as to why the Atlanta Fed GDPNow Model moves counter to what one would normally expect following economic news releases.

For example, on December first, construction spending hit an 8-year high. On the same day the ISM was a huge disappointment.

I expected the net overall result of those to be a small net minus, with construction adding to GDP and ISM subtracting.

I commented on that idea in GDPNow Forecast for 4th Quarter Dips to 1.4% Following Weak ISM and Strong Construction Reports. Here are a few snips. 

Construction Spending Beats Estimates

The consensus estimate for construction spending was +0.6% but the actual month-over-month reading was +1.0%.

Construction Contribution to GDP

As noted earlier today, this morning’s ISM report was a disaster. (See Manufacturing ISM Contracts; Lowest Reading Since June 2009; Glimmers of Hope Extinguished). But the construction report looked good. Combined with ISM spending, I would have expected the net result of today’s reports to be an overall small minus.

Actual GDPNow Forecast Results were dramatically different. 

GDPNow Forecast Sinks 0.4 Percentage Points to 1.4 Percent.

Construction Subtracts From GDP vs. Prior Estimate

Compared to the November 27 report that included new home sales, construction appears to have subtracted approximately 0.09 percentage points and ISM roughly another 0.31 percentage points. Other reports in between may have contributed but those should be the main factors.

I have a question into the Atlanta Fed regarding construction contribution to GDP.

My Question to Atlanta Fed 

 Construction Spending was up 1% month-over-month today. I would have expected this to add to your GDPNow forecast. 

Instead it subtracted. 

Bloomberg Econoday made this comment: “The housing data in this report are not only favorable but the pop higher in related permits, in data previously released with the housing starts & permits report, hints at further gains ahead. This report points to a solid fourth-quarter contribution from construction.”

Instead it appears the construction report subtracted 0.09 vs. the prior estimate. Can you explain?

Thanks
Mish