Forecasting Q4 GDP: A Look At The WSJ Economists' Collective Crystal Ball

by: Doug Short

The big economic number this week will be the Q4 Advance Estimate for GDP on Friday at 8:30 AM EST. For some perspective on quarterly GDP so far this year, Q1 was negative at -2.1%, followed by a strong rebound to 4.6% in Q2 and a drift higher in Q3 to 5.0%. The standard explanation for the Q1 contraction is the economic impact of an unseasonably cold winter.

What do economists see in their collective crystal ball for Q4 of 2014? Let's take a look at the GDP forecasts from the latest Wall Street Journal survey of economists conducted earlier this month.

Here's a snapshot of the full array of WSJ opinions about Q4 GDP. I've highlighted the values for the median (middle), mean (average) and mode (most frequent). In the latest forecast, the median and mean were an identical to one decimal place at 3.0%. The mode (seven of 65 forecasts) was a tad higher at 3.2%, and the second most frequent value was a higher 3.4%.

As the visualization above illustrates, despite the matchup of the median and mean, the latest WSJ survey had its outliers, ranging from a grimly pessimistic 1.4% to a trio at 4.0% and an even more optimistic forecast of 4.2%. aligns with the median & mean WSJ economists with its 3.0% forecast. The consensus goes with the WSJ mode at 3.2%, but its own estimate is for a higher 3.4%.

GDP in 2015

Friday's release of the Advance Estimate for Q4 GDP is, of course, a rear-view mirror look at the economy. The WSJ survey also asks the participants to forecast GDP for the four quarters of 2015. Here is a table documenting the median, mean and extremes for those forecasts.

Interestingly enough (or should I say "boringly enough"), the median to one decimal place is unchanged at 3.0% for the next four quarters, and the mean oscillates by a fractional 0.1%.

GDP: A Long-Term Historical Context

For a broad historical context for the latest forecasts, here a snapshot of GDP since Uncle Sam began tracking the data quarterly in 1947. The Q3 WSJ median and mean forecasts are above the 1.6% 10-year moving average and just a tad below the 3.3% Quarterly GDP average since its inception in 1947.

A More Intuitive Look at Quarterly GDP

I'll close with one more look at quarterly GDP - the year-over-year percent change, which is certainly more intuitive than the conventional practice of the Bureau of Economic Analysis of calculating GDP by compounding the quarterly percent change at annual rates (which they explain here). Consider: the three quarters of 2014 GDP using the BEA's preferred method are -2.1%, 4.6% and 5.0%. The year-over-year change in the three quarters is a much less attention-grabbing 1.9%, 2.6% and 2.7%. When we use the more intuitive percent change from a year ago, we get a somewhat disturbing long-term perspective on where we are in the grand scheme of things, one the more closely resembles the moving average in the chart above.

On Friday we'll find out how the Q4 forecasts stack up against the Advance Estimate of the real thing.

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