Nowcasting with payments system data

We consider the potential usefulness of a large set of electronic payments data, comprising the values and numbers of both debit card transactions and cheques that clear through the banking system, for the problem of reducing the current-period forecast ('nowcast') loss for (the growth rates of) GDP and retail sales. The payments system variables capture a broad range of spending activity and are available on a very timely basis, making them suitable current indicators. We generate nowcasts of GDP and retail sales growth for a given month on seven different dates, over a period of two and a half months preceding the first official releases, which is the period over which nowcasts would be of interest. We find statistically significant evidence that payments system data can reduce the nowcast error for both GDP and retail sales growth. Both debit transaction and cheque clearance data are of value in reducing nowcast losses for GDP growth, although the latter are of little or no value when debit data are also included. For retail sales, cheque data appear to produce no further nowcast loss reductions, regardless of whether or not debit transactions are included in the nowcasting model.