Saturday, May 10, 2008

The gloom-and-doom folks are back

2008 growth outlook deteriorated: Blue Chip
Sat May 10, 2008
WASHINGTON (Reuters) - Even with some signs of improvement in the U.S. financial markets and a temporary boost from the economic stimulus package, the growth outlook for the second half of this year has deteriorated, according to a panel of economic forecasters.

The weakest annual consumer spending since 1991 will lead to a darker outlook, the Blue Chip Economic Indicators found.

The consensus of economists polled between May 5 and 6 in the survey said the economy will grow at a 1.7 percent annual rate in the third quarter, down from the 2.0 percent forecast a month ago.

For the fourth quarter, GDP is expected to grow by 1.5 percent, down from 1.9 percent seen earlier.

The outlook for 2009 has also darkened, with economists expecting growth of just 2.0 percent, down from 2.2 percent forecast earlier.

A couple of observations:
1) Though the forecast apparently represents a revision downward from previous, it still sees a growing economy - not recession.
2) "Prediction is very difficult, especially about the future." This quotation is attributed to both Neils Bohr (Nobel Prize-winning physicist) and Yogi Berra (1950s NY Yankees catcher). The joy of the internets: you can learn all sorts of stuff... but it's sometimes just a wee bit difficult to figure out which of the stuff is true!

Economic forecasts are more akin to subjective psychological tests than to science. As often as not, they reflect the underlying hopes of the folks making them, which may or may not be related to reality. [I speak with some expertise on this subject: my job for the past 4 years has involved economic forecasting.]

Yes, the economists probably have some really cool models based on high-powered math... but the assumptions that go into the models have more to do with the outcome than anything, and the assumptions are necessarily subjective.

Have a nice day.

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