My post on CEA’s forecast discussed the similarity between the Administration’s forecast and the Society of Professional Forecasters forecast. What can we learn from recent SPF forecasts, in the wake of decelerating growth.
In Figure 1 below, I’ve plotted the last three SPF forecasts and the closest vintage log real GDP.
Figure 1: Log real GDP and Society of Professional Forecasters’ forecasts for 15 May (purple *), 14 August (black x) and 13 November (red +), 2006. Source: BEA via St. Louis Fed ALFRED and SPF via Philadelphia Fed
What is interesting is that even as the level of GDP has been revised downward, predicted growth rates remain largely the same. Since it’s hard to distinguish growth rates in log levels, I also plot the annualized growth rates calculated using log differences. This yields the graph in Figure 2.
Figure 2: First-differenced (annualized) log real GDP, Society of Professional Forecasters’ forecasts for 15 May (purple *), 14 August (black x) and 13 November (red +), 2006, and author’s calculations. Source: BEA via St. Louis Fed ALFRED and SPF via Philadelphia Fed
What is true is that as each quarter’s data comes in with lower growth rates, the nearest-quarter forecast growth declines, but the out-quarters forecast converges back to slightly under 3 percent annualized growth (in log terms).
In other words, forecasters continue believe that whatever shocks perturb the economy, within about two quarters growth resumes at roughly pre-shock levels (although the level of GDP is permanently lower).