Tuesday , 26 September 2023

WSJ Economist Survey Estimates Regarding Future GDP and Probability of Recession Inconsistent! Here's Why

50 economists forecast their estimates for real GDP over the next 6 quarters in a recent Wall Street Journal survey [and their projections, on average, show a modest increase through to the end of 2012 as the table below shows. In addition, they were asked] to forecast… the probability of a recession in the U.S. in the next 12 months] and the results were quite surprising – quite. [Let me show you.] Words: 600

So says Doug Short (www.dshort.com) in edited comments from an article* which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has further edited ([ ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

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Short goes on to say, in part:

We see [in the table below] that the low end of the range dips into negative GDP territory for Q4 this year and Q1 in 2012. However, the -1.0 number in the table above was the lone negative forecast of Julia Coronado of BNP Paribas for both quarters.

Below is a graph illustrating the single negative outlier for Q4.

Here is the equivalent graph for Q1 2012.

Probability of a Recession

Based on the charts above, you might guess that [the answer to the question “On a scale of 0 to 100, what is the probability of a recession in the U.S. in the next 12 months?” is a very low number, right? [After all,] only one of the 50 economists (i.e. 2%) actually forecast negative GDP, which correlates rather closely with recessions (see this chart). [You would be wrong to do so, however, because] the answer was 31%. Let me repeat that: 31%!!

Amazingly enough, the same economists who (with a single outlier) forecast positive GDP with a consensus averages ranging from 2.0 to 2.5 over the next six quarters, collectively see a 31% chance of a recession over the next 12 months.


[While] estimating the probability of a recession isn’t *exactly* the same [as] forecasting GDP…the astonishing disconnect between the two in the WSJ survey suggests that we take the public forecasts of economists with a grain of salt. Aside from two or three academics, the participants in the WSJ survey are employed in the finance industry. Does that contribute to the disconnect?


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