March 16, 2009
GDP Forecasts from the WSJ
With talk of a second stimulus package circulating, it's of interest to see what the current forecasts are indicating about the depth of the recession, as well as the "bounceback". Jim has presented some of his views here. In this post, I examine the implications of the consensus coming from the March WSJ survey article, which indicates continued deterioration in the outlook, but a recovery beginning in 2009Q3.
Figure 1: Real GDP preliminary (blue), advance (red), February WSJ survey mean forecast (green), March WSJ survey mean forecast (teal), and CBO potential GDP (black), all in log of Ch.2000$. Source: BEA GDP releases, WSJ, CBO, NBER and author’s calculations.
By end-2009, the output gap is predicted to be 7.6% (7.9% in log terms). For those economists who kept on saying this recession was “not too bad”, it is of interest that the output gap – at least as implied by the CBO – is forecasted to rival that at the end of the back to back 1980 and 1981-82 recessions, which ended up at 7.7% (8% in log terms).
In terms of growth rates, the mean forecast indicates that GDP growth will close in on the growth rate of CBO-estimated potential GDP in 2009Q4.
Figure 2: Quarter-on-quarter annualized growth rate of real GDP preliminary (blue), and March WSJ survey mean forecast (teal), and CBO potential GDP (black), all calculated using log differences. Source: BEA GDP releases, WSJ, CBO, NBER and author’s calculations.
As noted in the article, the "recovery date" keeps on getting pushed back...
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Posted by Menzie Chinn at March 16, 2009 03:30 PMdigg this | reddit
"but a recovery beginning in 2009Q3."
....What have I been sayin'?
And it keeps getting pushed back, but by smaller and smaller deltas.
Of course, the recovery will be weak, and I think it is more likely that the potential GDP line moves downward, than for us to get a year of 8% GDP growth that would get us back to the line.
Posted by: GK at March 16, 2009 06:12 PM
I agree with GK. Forecasters are too optimistic. Like GD1, 'prosperity is just around the corner.'
Posted by: don at March 16, 2009 06:36 PM
Recovery in 2009Q3 is pure fantasy. This is not an inventory correction recession. Personal consumption in the current quarter will probably be level with last quarter, and has no reason to rebound anytime soon as consumers continue to rebuild their balance sheet. There is danger of further declines in consumption as unemployment chips away at personal income.
Residential and non-residential construction will continue to drag on GDP. Business investment is likely to fall sharply as business cut cap-ex to conserve cash. Trade is likely to continue to drag on GDP this year as a strong dollar ensures that exports will drop faster than imports.
Some of the effects of the stimulus will be felt in Q3 this year but unlike last year's stimulus, the money will dribble into consumer's pockets. Many will not realize that any stimulus is occurring until next year.
We can expect a second round of stimulus to get passed over the summer; hopefully better thought out than the first round.
Posted by: Rajesh at March 16, 2009 06:38 PM
It took us a while, or so it seems, to get into this mess, and it only makes sense that it will take more than just a few quarters to get back out of it. No matter what steps we take, we will not see the end of this for a while yet. It is good that at least there is a small bit of hope for an improvement, if even just a small bit. Anything will help. I'd really hope that there is a little bit of thought as to how we are going to continue the improvement after the first stimulus package is exherted, which will be very quickly, I'd imagine.
Posted by: Tommy at March 16, 2009 08:44 PM
Well its not just an inventory correction. But it definitely is an inventory correction and at the fastest rate since 1974 if I'm not mistaken.
Take autos even after yesterdays rise, annual production is at a 4.3million rate. Compared to very low sales of over 9m.
And I don't think a bounce back can be ruled out either. Just as after 1974 and 1980. Not that that's particularly optimistic, as the ball bumped back to earth pretty quick.
Posted by: bill j at March 17, 2009 03:12 AM
1) How different these forecasts are from unconditional Q/Q GDP forecasts?
2) Is there statistically significant evidence that we can forecast Q/Q GDP growth more than 2Q ahead?
3) What kind of confidence intervals should we attach to these kinds of forecasts?
Posted by: SvN at March 17, 2009 04:35 AM
Nancy Pelosi has implied there will be no second stimulus and Republicans are prepared for an all out attack with AIG as the battle cry against any second stimulus. It is this along with comments by Geithner that there will be no new taxes until at least 2011 that have given some relief to the markets.
But there is a 900 lb. gorilla hanging out there, cap-in-trade is the largest most destructive tax even considered on US business. If it is introduced into the House hold on to your seats because the roller coaster is going to take another fall.
Recovery is not determined by graphs and calculations of numbers that are over 6 months old and still being adjusted. Recovery - or lack of - will come from what is happening now or what happens tomorrow. Some economics is stuck in the past and some is forward looking. It is too bad that there are not more forward looking economics. Most are watching the future from their rearview mirror while tinkering with their equations of outdated data.
Posted by: DickF at March 17, 2009 05:15 AM
Yes, it is curious about the inventory build. This time, the overbuild is out there in the hands of consumers: too many houses, too many automobiles.
I listened to an American pundit on Canada's business network news BNN.ca the other day suggest that the USA could solve the problem through higher rates of immigration. (!) The USA already enjoys one of the highest population growth rates among the rich developped nations. It explains in part some of the pitifully low Social Capital of many American neighbourhoods.
DickF, I do admire the willingness of Americans to trash your natural environment for the sake of immediate material growth. It is your birthright; God made the USA and the planet so you can go and use it up. That said, I wouldn't worry too much about cap 'n trade carbon emission programs. It will stuck on the backburner just like green excise tax increases on dirty fossil fuels. Priorities. Judging from what I am seeing with respect to Middle East politics, special interest influence is alive and kicking under the Obama administration despite lofty rhetoric to the contrary.
Posted by: GNP at March 17, 2009 09:18 AM
Let's be honest and call these things "Hopecasts".
Posted by: wally at March 17, 2009 02:04 PM
Just curious. What do you believe the impact will be to the US economy if energy usage is reduced to 80% of the 1990 level of usage? This is not an arbitrary number but Obama's promise in his campaign.
Posted by: DickF at March 17, 2009 02:10 PM
What do you think will be the impact for the billion of the world's poorest living in areas especially susceptible to climate change (such as Sub-Saharan Africa, Bangladesh) if the world's rich nations do not cut greenhouse emissions radically? My answer not foreclosure on house bought in the midst of a greed fueled borrowing bubble, but in many cases death.
We all need to adjust our expectations and expand our horizons of compassion.
You may find Neva Godwin's analysis interesting: http://www.ase.tufts.edu/gdae/Pubs/wp/08-01OverviewOfClimateChange.pdf
Posted by: Barry at March 17, 2009 04:05 PM
Why do conservatives insist on lying? DickF claims that Obama promised to reduce energy usage by 80%. This is, of course, not what he said. He said that we need to cut emissions of greenhouse gases by 80% by 2050. These are not even close to being the same thing.
Posted by: Jim Satterfield at March 17, 2009 06:07 PM
What do you think will be the impact for the billion of the world's poorest living in areas especially susceptible to climate change (such as Sub-Saharan Africa, Bangladesh) if the world's rich nations do not cut greenhouse emissions radically?
The impact will be virtually nil.
You buy into the idea that increased temperature creates deserts and drought, yet where are the world's rainforrests?
Tell me is our current world temperature in the upper 25% of historical recorded temperatures, in the lower 25% or in the 50% moderate range?
Another question, if the temperature is below average and then moves to 1% above average is that good or bad?
We are not even close to the climate extremes that the extremists would have you believe. Their claims have not been proven in over 70 years. They do have a purpose for creating a crisis atmosphere and that is to get money from the government.
But AGW is just an attempt to create a new secular religion complete with tithes and alms.
Posted by: DickF at March 18, 2009 11:36 AM
What do you believe the impact will be to the US economy if energy usage is reduced to 80% of the 1990 level of usage? This is not an arbitrary number but Obama's promise in his campaign.
New York Times wrote:
Mr. Obama said if he was elected, the government would set a national cap on carbon emissions, which by 2050 would be reduced to 80 percent below the levels in 1990.
Jim Satterfield wrote:
Why do conservatives insist on lying? DickF claims that Obama promised to reduce energy usage by 80%. This is, of course, not what he said.
Just for the record Jim I am not a conservative. I am a classical liberal, the way liberalism was originally defined before the central planner stole the term to exploit its goodwill.
Posted by: DickF at March 18, 2009 11:56 AM