An Optimistic Forecast for 4th Quarter GDP 2008
Update: 4th Quarter GDP Report
We all know 4th quarter GDP wasn’t good and most forecasts are in the range of -5% although I’ve seen estimates as bad as -7%. What if 4th quarter GDP wasn’t really as bad as the consensus expects? I’ve been reading the Casey Mulligan’s Supply and Demand blog for a while now and he’s been making some very insightful observations. Mulligan is an economics professor at the University of Chicago. Here’s his 4th quarter estimates for GDP calculated 3 different ways:
I have used three different methods to make my own forecast, and each of them says that the pundits are wrong. Here is what I find for seasonally adjusted real GDP growth Q3-Q4 at annual percentage rates (and thus in the same units as the -5 cited above):
- Productivity based: -2.2%
- Income based: +0.4%
- Spending based: +0.8%
Obviously, those numbers are quite a bit different than what we’re hearing from other economists. These forecasts are not just wild guesses but are based on the actual reported economic statistics from the 4th quarter (which are not all in yet). Predicting this stuff is almost impossible, but I think the logic Mulligan uses is sound. What’s really interesting is how little difference there is between the optimistic and pessimistic predictions when put in per capita terms:
I do not want to exaggerate the degree of precision any of us have — the gap between my most and least optimistic forecast is only about $75 per person. The gap between Goldman and my least optimistic forecast is also about $75 per person. But there is no doubt that I see Q4 a lot differently than do the pundits.
My rough estimate for 4th quarter, based primarily on spending, is -3 to -4%, but I hope Mulligan is right. I do agree with Mulligan that things aren’t nearly as bad as everyone seems to think. We’ll find out how much better soon when 4th quarter GDP is released.
Alhambra Investments 4th Quarter GDP Estimate
4th Quarter GDP Growth…What To Expect
- January 20th
[...] Update: An Optimistic Forecast For 4th Quarter GDP [...]
[...] Update: An Optimistic Forecast For 4th Quarter GDP [...]
[...] Update: An Optimistic Forecast For 4th Quarter GDP [...]
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[...] The only other economic news of significance was the release of 4th quarter GDP for the UK which came in at an annualized -6%. I don’t think anyone was all that surprised by the drop but the magnitude is jaw dropping. We’ll get 4th quarter GDP for the US next week and while it will almost certainly be negative, I take a little solace from the UK numbers. The UK is widely perceived as being in even worse shape than we are (take a look at what’s happening to Pound Sterling) and while expectations for the US are in the same range, I think there is a possibility that the numbers won’t be as bad as everyone expects. [...]
[...] The only other economic news of significance was the release of 4th quarter GDP for the UK which came in at an annualized -6%. I don’t think anyone was all that surprised by the drop but the magnitude is jaw dropping. We’ll get 4th quarter GDP for the US next week and while it will almost certainly be negative, I take a little solace from the UK numbers. The UK is widely perceived as being in even worse shape than we are (take a look at what’s happening to Pound Sterling) and while expectations for the US are in the same range, I think there is a possibility that the numbers won’t be as bad as everyone expects. [...]
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