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What Are The Odds Of Recession?

  • Written by Syndicated Publisher 1 Comment1 Comment Comments
    May 17, 2012

    Earlier this week the Wall Street Journal posted the results of its May Survey of economists. Naturally I charted some of the data, focusing on GDP, but I held off on sharing it until we got the latest Federal Reserve GDP projections, published at 2 PM today. Here’s a link to the Journal’s forecast page and the actual data in the WSJ Excel File.

    First, some context: The BEA’s Advance Estimate for Q1 GDP came in at 2.2 percent, a decline from the 3.0 percent Final Estimate for Q4 2011. The average GDP since the inception of quarterly GDP reporting in the late 1940s is 3.3 percent, which is nearly double the 1.7 percent 10-year moving average of GDP through the end of 2011 (illustrated here).

    As we might expect, the May WSJ survey consensus, both the median (middle), mean (average) and mode (the most frequent forecast) was — no surprise here — spot on the BEA’s estimate of 2.2 percent.

     

     

    What about Q2 2012 GDP? The median stuck at 2.2 percent, but interestingly enough, only two of the 49 respondents stuck to the median. And only 3 respondents hit the mean, 0.1 percent higher at 2.3. The mode for Q2 GDP is unchanged at 2.0 percent.

     

     

    Thus far we’ve looked at the forecasts for quarterly GDP. What about the WSJ survey forecast for 2012 annual GDP? Today’s Federal Reserve economic projections are available as a PDF file here. The latest Fed range of estimates for 2012 GDP is 2.1 to 3.0, with a “central tendency” of 2.4 to 2.9. The range is unchanged from the January projections, but the “central tendency” is an upward revision from January’s projections of 2.2 to 2.7.

    Now let’s have a look at what the WSJ economists think about the 2012 annual number.

     

     

    So, with a 2.5 percent mean (two respondents), a 2.3 percent median (6 respondents) and a mode of 2.0 percent (7 respondents), the economists are distinctly less optimistic in that their estimates gravitate toward in the lower end of the Fed’s range. Particularly striking is the fact that the most frequent estimate is also the lowest estimate.

    Odds of a Recession

    The WSJ survey questionnaire again this month included a question about the probability, on a scale of 1 to 100, of a US recession in the next 12 months. None of the economists offered a negative GDP forecast; however, the average response to the probability question was 16%, unchanged from January.

     

    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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