Courtesy of Doug Short.
Last week I posted the latest GDP forecasts from the Wall Street Journal’s December Survey of economists here. I focused on their forecasts for Q4 2011, Q1 2012 and the overall 2012 forecasts.
On Friday the Wall Street Rant blog posted an interesting overlay of the December WSJ GDP survey forecasts for 2012 with the equivalent 2008 forecasts made in December 2007.
Here’s is the chart followed by an excerpt from the Rant commentary.
| The Wall Street Journal recently released its December Survey of Economists. This is where you generally get to hear about the current consensus groupthink. In the survey, 54 economists gave their projections for GDP in 2012 (among many other things). I decided to compare this year’s projections for the year ahead to what these great minds saw coming in December 2007 (the month the last recession started). Does anything about this strike anyone else as quite similar?
Now just maybe if they would have added a negative sign to their 2008 forecasts they would have been pretty spot on (considering GDP for the year finished down -2.5%). The December 2007 survey included 51 “economists”….yet not one came up with a negative GDP projection. Here we are now in 2011, with the European situation, the rest of the developed world including the US and Japan soaked in debt, and China trying to build ghost cities until someone rises from the dead, and not one of the 54 “economists” is willing to project anything lower than 1.3%. (Link to source.)
This coming week we will get the third estimate for Q3 GDP. The preliminary estimate was 2.5%, revised downward last month to 2.0%. Not until the end of January will we get our first estimate of 2011 Q4 GDP, and the first estimate for Q1 GDP won’t be released until the end of April. So it will be some time before we have even the first clue as to the accuracy of the latest WSJ estimates for next year’s GDP.
What About GDP and Recessions?
For a bit of historical perspective, here is a chart of GDP and recessions since 1948, which is when GDP began being calculated on a quarterly basis. As we can see GDP is a highly volatile indicator.
As the adjacent table illustrates, the correlation between quarterly GDP and recessions is quite erratic. The U.S. has had eleven recessions since the earliest quarterly GDP calculations. In the month declared by the National Bureau of Economic Research (NBER) as the beginning of the recession (often a year or more after the fact), quarterly GDP for that month has only been negative four times.
We’ll continue to monitor the WSJ GDP forecasts and evaluate them for accuracy. But this is a drama that will play out in slow motion over a many months. Given the volatility of GDP, the spread between the WSJ forecast average and subsequent reality could range from zero to quite wide.