“CBO’s Economic Forecasting Record: 2019 Update”

From the Highlights of a new CBO study:

Comparison With Other Forecasts. For the most part, CBO’s and the Administration’s forecasts exhibit similar degrees of centeredness, but CBO’s forecasts are slightly more accurate and have smaller two-thirds  spreads. For all three quality measures, CBO’s forecasts are roughly comparable to the Blue Chip consensus forecasts.

Sources of Forecast Errors. All forecasters failed to anticipate  certain key economic developments, resulting in significant forecast errors. The main sources of those errors are turning points in the business cycle, changes in labor productivity trends and crude oil prices, the persistent decline in interest rates, the decline in labor income as a share of gross domestic product, and data revisions.

The entire report is here (E. Gamber/A. Staveski). Don’t read and comment on it unless you understand mean error, root mean squared error, and the concept of an inter-quartile range (which encompasses 50% of sample, as opposed to th 67% used in this study).

This is forecast minus actual. Notice that both forecasters and consensus forecast did not foresee the Great Recession, while CBO was on average less optimistic than either OMB or Blue Chip consensus in the immediate recovery years.

There is an interesting comparison of CBO (current law) and Fed modal (conditional) forecast errors in a box on page 14. Here is the graph for real GDP growth forecasts errors (dots denote periods of forecasts overlapping recessions).

Notes: The measure of real output is gross national product in years before 1992 and gross domestic product in 1992 and later years. Positive errors represent overestimates. The dots shown on the horizontal axis indicate that the forecast period overlapped a recession by six months or more. The years indicate the time span covered by each of the forecast errors shown in the figure.

14 thoughts on ““CBO’s Economic Forecasting Record: 2019 Update”

  1. pgl

    “CBO’s and the Administration’s forecasts exhibit similar degrees of centeredness, but CBO’s forecasts are slightly more accurate and have smaller two-thirds spreads. For all three quality measures, CBO’s forecasts are roughly comparable to the Blue Chip consensus forecasts.”

    Of course you are plotting the Administration forecast errors along with those of the CBO and Blue Chip mainly from previous Administrations. In a few years we can compare the forecast errors under the Trumpian four years to actual experience. I bet the graphs will be revealing as I suspect those Administration forecast errors will get larger. Which of course to the really stupid Trump crowd will be seen as a good thing!

    Reply
  2. 2slugbaits

    Don’t read and comment on it unless you understand mean error, root mean squared error, and the concept of an inter-quartile range

    Box 1 on page 6 refers to a geometric average, so more math for the math challenged here. Good news for Ed Hanson….no logs!

    I wonder how much “herding” is going on with these forecasts. The CBO and Blue Chip consensus forecasts seem surprisingly (suspiciously???) close.

    The paper reminds us that CBO’s forecasts are legally constrained to reflect current law, so forecast “errors” due to changes in tax and fiscal policies should get some kind of handicap adjustment.

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  3. Moses Herzog

    Interesting, my first thought on this without reading the CBO link, is Menzie must be using this as a “future marker” or “marker to be used in the future” when the trump NEC forecasts can be looked at in hindsight and compared??

    Are we ready for some bad news?? Michael Bloomberg is rumored to be throwing his hat in the 2020 ring. I am afraid this increases donald trump’s chances of winning drastically. If so, this is even worse than what Biden is doing. I might have supported a Bloomberg run 20 years ago. Now??—-if Bloomberg is actually committing to running in 2020—- I wish the man goes straight to Hell where some kind of carnal torture involving a jagged metal pipe with a splintered surface can be committed on him.

    When does the ego ever stop with these guys?? Never a concern for how their actions effect the world around them—Never.

    Reply
    1. Barkley Rosser

      Sorry, Mose, but I see no way Bloomberg’s entry into the race will increase Trump’s chance of winning. He will go nowhere. No Dems want billionnaires. Look at Tom Steyer, who has been in the race for some time, running ads, and so on. Managed even to get on the last debate stage. But he is down there in the 1-2% range with Tulsi Gabbard. Bloomberg will not get even that far, although obviously he thinks he can just ask for it and the nomination will be his. No way, not even remotely close. This changes nothing.

      Reply
    2. dilbert dogbert

      My thought about Bloomberg was that he would be 79 when taking office, if elected. I don’t think we need another Alzheimer’s Patient in the Oval Office. Nor, should the democrats nominate a republican.

      Reply
  4. Brian

    Does the CBO publish the model underlying their forecasts, or is it hidden to prevent legislators from playing games? Also, it seems to me that true backtesting results of the current model should be shown as well. The fact that forecasts made in 2006 for 2008 failed to anticipate the Great Recession is one thing, but what really matters is whether the current model would do any better. In judging whether we should believe the forecasts to be made this year or next year, we want to know how well the current model performs — not how a deprecated version of the model performs.

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  5. Steven Kopits

    Well, these forecasts are not independent of each other. They are prepared with the knowledge of what the others are, or have been, forecasting.

    I think the error regimes are more interesting. Forecasts for the Reagan years appear to have been colored by the two preceding oil shocks. Forecast for the Bush II years were colored by Clinton II, still the exemplar four year period in the last half century. No one saw the Great Recession coming, although, to its credit, CBO did a better job of restraining growth expectations than did the consensus in the prior decade.

    Interestingly, both the consensus and CBO now appear to be under-estimating current GDP growth.

    Reply
    1. pgl

      I wonder if Stevie even read the CBO paper before accusing the CBO of underestimating current GDP growth. Let’s see:

      “CBO estimated in August 2019 that there is approximately a two-thirds chance that economic growth will average between 0.7 percent and 3.3 percent over the next five years. Its central estimate is 2.0 percent.”

      Also note figure 3 which shows actual GDP growth exceeded forecasts for the 5-year average with the forecast error for the 2- year average being near zero.

      Oh wait – the pillars of Princeton Stevie’s advanced data machine has some sort of secret data no one else is aware of. OK – Stevie. You must have some master model that suggests real GDP with exceed the 2% central estimate provided by CBO. We bow down to your arrogance and “expertise”. LORD!

      Reply
  6. Moses Herzog

    Oh Goodness, look who’s salivating sloppily on someone else’s sphincters for a lifetime job on Bloomberg website’s Senior Editorial staff:
    https://www.nytimes.com/section/opinion?pagetype=Homepage&action=click&module=Opinion

    Bret’s suuuuuch a good little boy, and you never know what next professional screw-up could make guaranteed employment come in very handy someday.
    https://www.theguardian.com/media/2019/aug/30/bret-stephens-bedbug-column-twitter

    https://www.motherjones.com/politics/2019/08/bret-stephens-bedbugs-twitter/

    Or perhaps Bret is narcissistic enough to think he’s the next Ted Sorenson and become Michael’s chief campaign speechwriter?? The permutations of kiss-A$$ jobs are endless for Bret.

    Reply
  7. pgl

    Devon Nunes sends his witness request to Adam Shiff and proves to the world what a pathetic little weasel Nunes really is:

    https://republicans-intelligence.house.gov/uploadedfiles/rm_letter_to_chm_re_witness_request.pdf?fbclid=IwAR3GHIdlgHt1x4KOKcQC8Rcnae7-9DgmsmnyfEHkgPpVgVzeqSNdCFwRjnk

    Nunes thinks this is about going after the Bidens and the Whistle Blower which is disgusting. But not nearly as disgusting as the first 3 paragraphs which are blatant lies likely penned by Donald Trump himself.

    Reply
  8. Moses Herzog

    Well folks, the FDA is saying one of the reasons for drug shortages on life saving drugs is because “providers” aren’t paying enough for drugs. Strange….. I thought when donald trump campaigned for political office he said drug prices were too high, Now donald trump is saying “providers” (otherwise known as doctors and physicians) should pay more for the drugs. I wonder what the doctors’ union (otherwise known as the AMA) has to say about that?? Or maybe the AMA (i.e. doctors) will just stay quiet like clever little boys because they know donald trump isn’t going to make them change the system at all, donald trump just going to tell the kids riding the mini-bus with their red dunce caps on that during his campaign speeches. Gee……I wonder……
    https://www.fda.gov/drugs/drug-shortages/report-drug-shortages-root-causes-and-potential-solutions

    Downloads of the report are near the bottom after the link jump. It’s interesting to note, in one hundred and twenty-one page report on drug shortages, the word “doctor” is used 3 times, and the word “physician” is used 2 times. In a one hundred and twenty-one page report on drug shortages. I wonder how many people in the FDA will get a revolving door job in hospital administration, health insurance etc when they are done writing reports on health care shortages where they cannot type the word “doctor”. It’s enough to remind you of the fantasy make believe world of “death panels”. Oh my!!!! I’ve gone too far again.

    Reply
  9. Moses Herzog

    Well here’s some interesting stuff related to the revolving door, the FDA, and even immigration from Karen Hobert Flynn at “The Hill”:
    “The revolving door long predates the Trump administration, but with billions of dollars at stake, more money and more people have been bouncing between the White House and major corporations in the health industry and beyond.

    Former White House Chief of Staff John Kelly is now a board member for the holding company operating the largest shelter for unaccompanied migrant children. And while Kelly personally stands to make at least $100,000 in an annual cash retainer, his company was offered a no-bid federal contract that could amount to more than $340 million—all to run the only for-profit shelter in the country.

    It’s clear to see that the Trump administration has no interest in even keeping up appearances when it comes to the revolving door and ethics. In Common Cause’s 2017 State of the Swamp Report, we highlighted the administration’s rejection of an ethics course for senior White House staff, Cabinet nominees and other political appointees.

    The move was fitting, as the president’s Cabinet had more former corporate leaders than any other in U.S. history.

    A study last year found more than 160 former lobbyists serving in the Trump administration—and those industry ties point to an administration that puts the priorities of large corporations over those of the American people.

    Just months-removed from vacating his position at the Environmental Protection Agency, former Secretary Scott Pruitt has already registered as a lobbyist in Indiana. The disgraced Cabinet head resigned amidst high-profile spending scandals and—unsurprisingly—his close ties to lobbyists in the energy industry. While it’s hardly a prestigious board membership, Pruitt’s lobbying gig already has him cashing in on coal company payrolls.

    Former oil lobbyist David Bernhardt is the current Acting Secretary of the Department of the Interior—just two years removed from representing clients like Cobalt International Energy and the Independent Petroleum Association of America. The former lobbyist got to work quickly, handing out oil and gas leases for public lands to the tune of $360 million in 2017, a near-90 percent increase from the year before. All this happening as he methodically erased any mention of climate change from his department.”

    https://thehill.com/blogs/congress-blog/politics/452654-for-big-pharma-the-revolving-door-keeps-spinning

    You’ll remember General Kelly was the inflamed an*s that told donald trump if he had only WH staff that could never tell him “no” he was going to have problems. But as far as immigration policy separating children from their parents and enriching himself with jam-packed private prisons, General Kelly was totally cool on that front. Gee….. I hope the “honorable” General Kelly can get some gigs on the lecture/speech circuit, or the bastard might cry himself to sleep every night wondering what more “ethical and good” things he could have achieved sucking on donald trump’s heinie for a few more months.
    https://www.cbsnews.com/news/john-kelly-joins-board-of-caliburn-international-company-operating-largest-unaccompanied-migrant-children-shelter/

    https://www.miamiherald.com/news/local/article228860749.html

    Remember kids, only “America’s finest” can lead our U.S. Armed Forces. Only “America’s finest” men.

    Reply

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