Saturday, 17 September 2011

WSJ Economists' GDP Forecasts: 2.0 in Q3 But Slow Improvement Thereafter

Yesterday the Wall Street Journal released the results of their September survey of 56 economists, mostly from major financial firms with a handful from academic institutions.

The September survey is available in Excel format here. I spent some time studying the results and have made a little snapshot to help us understand what these mainstream professional economists are forecasting for quarterly GDP for the next six quarters through the end of 2012.

The chart below includes the responses of each economist. The six forecast series are arranged horizontally from low to high so we get a clear idea of the distribution of responses and any outliers.

Earlier this year the general view of the Fed, mainstream economists and Wall Street pundits was that the "soft patch" of the first half of 2011 would be followed by a stronger second half. See, for example, the Q3 and Q4 GDP estimates in the July WSJ survey, which both averaged 3.1. Over the past several weeks, however, many have lowered their second half expectations. Still the WSJ survey participants, on average, have remained confident of stronger second half, although clearly not as strong (a 1.1 percent haircut) as in their July estimates. Still, the 2.0 average estimate for Q3 GDP is double the 1.0 Q2 Second Estimate (3rd Estimate due on September 29th). But, as usual with the WSJ survey, the range is rather striking — from 0.7 to 3.5.

There is one conspicuous outlier among the economists, someone who sees a -2.0 GDP for Q4 2011.

That's the sole negative GDP estimate from all the economists for the next six quarters.

Also interesting is the inference we can make about the general optimism of the surveyed economists for 2012. They see next year as a gradual move from 2.1 in Q1 to 2.7 in Q4. Again, the range of forecasts is rather phenomenal, with Q4 2012 estimates as low as 0.6 and as high as 4.5.

Forecasting the 10-Year Treasury Yield

The next chart shows the forecasts for the benchmark Treasury at 2011 year end and 2012 mid-year and year-end. I've highlighted on the chart where we were yesterday when the forecast was released. The yield at the September 14th close was 2.03.

We can see a very small number of forecasts for continuing yield shrinkage, down to 1.50. But the average for year-end 2011 is an increase of about 34 basis points from day the forecast was released. The pattern for 2012 is a clear expectation of higher yields, with one outlier forecasting a 10-year yield of 6.8 by the end of 2012.

We'll check back next month to see what the WSJ survey is telling us about the economy.

by: Doug Short


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