Monday, May 24, 2010

Economic outlook good

The National Association for Business Economics sees good economic growth ahead:
The U.S. economy should expand at a solid pace this year and next as consumers increase spending, confident the recession is behind them, a panel of economists said in a survey released Monday.

The 46 economists surveyed in the National Association for Business Economics report between April 27 and May 7 predicted U.S. gross domestic product would expand by 3.2% in 2010 and 2011.

That is a touch higher than the 3.1% growth predicted for both years in the last survey, released Feb. 10.

"Although risks involving Europe have recently escalated, the outlook in this country has improved in most respects," said NABE President Lynn Reaser, chief economist at Point Loma Nazarene University.

"Growth prospects are stronger, unemployment and inflation are lower, and worries relating to consumer retrenchment and domestic financial headwinds have diminished," she said.
Judging by the slope of the Treasury yield curve, I too expect decent economic growth over the coming year. That said, the economy fell so far during this recession that it will take a long time to get back to potential GDP.

To put things in perspective, here's a graph of real GDP vs. potential real GDP:

Luckily, real GDP is currently growing faster than potential real GDP, which is needed if we want the economy to get back to normal.


  1. Did the National Association for Business Economics accurately predict any other major market moves in the past? What is their track record? Is it enough to have an official-sounding name?

  2. Good question. It appears that their forecasting ability is horrendous. Here's their forecast in December of 2007, when the economy had already entered into recession:

    "The NABE panel pared back further its expectations for growth this quarter and in 2008 but is still not predicting a recession."

    Here's what they said in March of 2008, when the economy was four months into the recession:

    "The NABE panel expects little economic growth in the first half of 2008, but anticipates a significant pickup in the second half."

    As we all know now, the second half of 2008 was when the economic roof caved in.

    An historical list of NABE's predictions can be found here.

    As Nouriel Roubini has frequently pointed out, economists were no better at forecasting the 2001 recession, even after the economy had entered into recession.

  3. Roubini is predicting a double dip! put your seats belts on!