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2008 vs 2011: What Economists Do Not See, Again

  • Written by Syndicated Publisher No Comments Comments
    December 18, 2011

    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.

    Images: Flickr (licence attribution)

    About The Author

    My original dshort.com website was launched in February 2005 using a domain name based on my real name, Doug Short. I’m a formerly retired first wave boomer with a Ph.D. in English from Duke. Now my website has been acquired byAdvisor Perspectives, where I have been appointed the Vice President of Research.

    My first career was a faculty position at North Carolina State University, where I achieved the rank of Full Professor in 1983. During the early ’80s I got hooked on academic uses of microcomputers for research and instruction. In 1983, I co-directed the Sixth International Conference on Computers and the Humanities. An IBM executive who attended the conference made me a job offer I couldn’t refuse.

    Thus began my new career as a Higher Education Consultant for IBM — an ambassador for Information Technology to major universities around the country. After 12 years with Big Blue, I grew tired of the constant travel and left for a series of IT management positions in the Research Triangle area of North Carolina. I concluded my IT career managing the group responsible for email and research databases at GlaxoSmithKline until my retirement in 2006.

    Contrary to what many visitors assume based on my last name, I’m not a bearish short seller. It’s true that some of my content has been a bit pessimistic in recent years. But I believe this is a result of economic realities and not a personal bias. For the record, my efforts to educate others about bear markets date from November 2007, as this Motley Fool article attests.
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