WSJ Economists' GDP Forecasts versus the Fed

March 20th, 2013

by Doug Short

Now that Cyprus is on the back burner, at least for the time being, the big news today was the publication of the FOMC minutes along with the Fed's three-year economic projections (2013-2015). Actually, these projections date from the meeting of the Federal Open Market Committee on December 11-12, 2012. In other words, like a lot of government data, they're a bit stale by the time of publication. However, these are slow-moving data series, so time is not exactly of the essence.

Below is a snapshot of a table from the Fed's website. It includes forecasts for GDP, Unemployment and Headline and Core PCE Inflation. But for now, we'll just focus on GDP.

Earlier this month the Wall Street Journal did its monthly survey of economists on a variety of economic metrics, including of course GDP. Fifty of the 52 economists solicited participated. Here is a look at the range of forecasts for Q1 2013 GDP. I've also highlighted the range of Fed forecasts. I've calculated the median (middle), mean (average) and mode (most frequent). Interestingly enough there were two modes for 2013 GDP on either side of the average.

Here is the same chart with the 2014 predictions and Fed range. Again we have two modes straddling the average, which, at 2.86%, is about half a percent higher than for 2013.

Ten fewer economists were willing to make forecasts as far out as 2015 (had I been solicited, I'd certainly have been one of the missing). Not surprisingly for this shot in the dark, the median, average and mode are an identical 3.0%.

But, first things first. At the end of next month we'll get the advance estimate for Q1 2013 GDP. And before that we'll get the third estimate for Q4 2012 GDP, which came in at -0.1% and 0.1%, respectively, in the first two estimates. The Fed doesn't bother with forecasts of quarterly GDP, but the WSJ economists definitely see an improvement for Q1 of this year.

Hurricane Sandy is behind us, the Fiscal Cliff turned out to be a minor bump and sequestration hasn't torpedoed the economy (at least not yet). In the final chart above, the median and mode are both at 2.0%, and the average is a tad higher, which confirms what our eyes tell us -- that the economists are a bit skewed toward the upside in their expectations for the first quarter.

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