Economic Forecast From The Federal Reserve

The recently released minutes of the June 23-24 FOMC meeting, found here:

http://www.federalreserve.gov/monetarypolicy/fomcminutes20090624.htm

stated the following: "The staff projected that real GDP would decline at a substantially slower rate in the second quarter than it had in the first quarter and then increase in the second half of 2009, though less rapidly than potential output. The staff also revised up its projection for the increase in real GDP in 2010, to a pace above the growth rate of potential GDP. As a consequence, the staff projected that the unemployment rate would rise further in 2009 but would edge down in 2010." Additionally, GDP for 2009 was forecast (using their term "Central Tendency") as -1.5% to -1.0%, and for 2010 as 2.1% to 3.3%. For 2011, 3.8% to 4.6% and "Longer Run" 2.5% to 2.7%. The Unemployment Rate is seen forecast as 9.8% to 10.1% in 2009, 9.5% to 9.8% in 2010, and 8.4% to 8.8% in 2011; with the "Longer Run" as 4.8 to 5.0%.

On another note, Nouriel Roubini is quoted at this link:

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a6qhJ4aCIlD0

it says "The U.S. recession will last six more months and be followed by a “shallow” recovery, Nouriel Roubini said."

Additionally, "This is a great recession that could have ended up in a near depression,” Roubini, the New York University economist who predicted the credit crisis, said on Bloomberg Radio’s “Surveillance.” “We’re not out of the woods.”
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I find Nouriel Roubini's comments, seen above, to be interesting as he has been seen as perhaps the "gloomiest" among the professional economists. Now, his (as well as RGE Monitor's) views don't seem too far from the consensus, albeit still below them.

The Federal Reserve forecast above, as well as Roubini's comments, seem to further confirm that there is a very widely held, tight (meaning there is little variance) consensus among public and private economists.

As stated previously on this blog, at this link here:

http://economicgreenfield.blogspot.com/2009/06/misc-note.html

from a fundamental perspective, I don't think (based upon my analysis) that the economist consensus that the "worst is behind us" is correct, unfortunately. During periods of economic decline, it is relatively common to have periods of "relief" from decline - then a resumption of further decline. This is what I believe we are experiencing now, both in the economy as well as the stock market rally (which I have previously referred to as a "bear market rally.")

Furthermore, from a purely statistical standpoint, I stated this in a July 1 blog post (seen in italics below):

"This conclusion, that "the worst may soon be over" and that recovery will quickly follow, seems to be extremely widely held among forecasters, as documented elsewhere (such as the June 19 post) on this blog.

I find this "widely held" facet to be fascinating in and among itself. Economic forecasts since 2007 have proven very inaccurate, and now we have an overwhelming consensus among public and private forecasters of recovery and slow growth going forward. From a purely statistical standpoint, what are the odds of such an overwhelming consensus proving accurate going forward, given that forecasts of 2007 - early 2009 proved so inaccurate?

Another issue is why is there such a consensus? Are all the forecasters using the same models, or is there such uncertainty that a "safety in numbers" mentality has taken hold?


SPX at 939.54 as this post is written



Copyright 2009 by Ted Kavadas

More Latest Thoughts from Economists

I've recently run across three other economist forecasting items I would like to post. While I don't mean to overemphasize these forecasts, I do think they are very significant on a number of fronts; and as such they deserve close monitoring and continual analysis and commentary:

First, another economist forecast survey that seems generally in line with the apparent economic forecast consensus, which I remarked upon in the last post:

http://www.reuters.com/article/bondsNews/idUSN1051292120090710

Second, from the RGE Monitor – U.S. Economic Outlook: Q2 2009 Update:

http://www.rgemonitor.com/blog/economonitor/257243/rge_monitor__us_economic_outlook_q2_2009_update

"We forecast negative real GDP growth in Q2 2009 and Q3 2009, and for real GDP to remain flat in Q4. After the sharp contraction in economic activity in 2009, growth will reenter positive territory only in 2010, and then at a very sluggish rate, well below potential."

Third, from the CalculatedRisk blog; not a economic/economist forecast, per se, but some thoughts as to what 2009-2010 may hold:

http://www.calculatedriskblog.com/2009/07/selected-gdp-forecasts.html

"I think the real GDP growth will turn slightly positive sometime in the 2nd half of this year, but my guess is 2010 will be barely positive, with the unemployment rate rising for most of 2010."

SPX at 879.13 as this post is written


Copyright 2009 by Ted Kavadas