GDP Forecasts In The June WSJ Survey Of Economists

Includes: DIA, IVV, SPY, VOO
by: Doug Short

Today, we'll get the Third Estimate for Q1 GDP from the Bureau of Economic Analysis. Meanwhile, The Wall Street Journal's June survey of economists was posted a couple of weeks ago, and the Federal Reserve weighed in with its GDP estimates last week. Let's see what their various crystal balls and tea leaves are telling them about the future (download the WSJ Excel File).

First, some context: The BEA's Second Estimate for Q1 GDP came in at 1.9 percent, a decline from Preliminary Estimate of 2.2 percent. 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).

Of course, many of us are eager to know what the Third Estimate will be. The consensus is for 1.9 percent, no change. And the June WSJ survey considers Q1 history. The latest questionnaire skipped Q1 and asked about the remaining quarters of 2012 and the annual forecasts for 2012 through 2014.

The chart below illustrates the responses for the three remaining quarters of 2012.

Click to enlarge

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What about the WSJ survey forecasts for annual GDP? The chart below illustrates their responses. Note that one of the economists who made a 2012 forecast skipped the 2013 question, and a dozen of them declined to make a 2014 forecast. What is particularly striking is the range of forecasts for each year - a range that, no surprisingly, increases as the gaze is directed further into the future.

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And now for the Fed's GDP expectations, which are annual forecasts only. The most recent the Federal Reserve economic projections date from June 20th, which are available here. But to save you the click, here is a snapshot of the GDP data.

Again, no surprises. The Fed's range of forecasts is narrower than the economists. My friend Lance Roberts has some interesting thoughts on the Fed's perspective in his essay last week: The Fed And Goldilocks Economic Forecasting.

But stay tuned. Tomorrow's Q1 Third Estimate might be a yawn (the consensus is for no change), but next month we get the annual revision wild card.

The annual revision of the national income and product accounts (NIPAs), covering the first quarter of 2009 through the first quarter of 2012, will be released along with the "advance" estimate of GDP for the second quarter of 2012 on July 27, 2012.

Last year's revisions produced some rather remarkable downward adjustments. Could we also see surprises in July?

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 in June offered a negative GDP forecast; however, the average response to the probability question was 19%, a small increase from the 16% in last month's survey.