Look who’s caught up to reality: The economists who participate in the WSJ’s Monthly Economic Forecasting Survey:
"This month’s WSJ.com economic forecasting survey showed projections for gross domestic product and employment growth were cut, while forecasts for consumer prices and oil prices were lifted. Economists continued to nudge higher their estimates of the probability of a recession over the next 12 months; on average, they put the likelihood at 26%, up from 20% in June and just 15% in February.
Economists, on average, forecast GDP growth at a 2.8% annual rate for the third quarter, the first time their forecast for that quarter has been under 3% since the economic forecasting survey first asked about the period in November 2005. While their forecast is slightly above the 2.5% real GDP growth recorded in the second quarter, it is well below the 5.6% growth in the first quarter and average annual growth rate of 3.2% from 2003 to 2005. The economists forecast growth slowing to a 2.6% rate in the fourth quarter, and staying at that rate for the first half of 2007. GDP is the broadest measure of economic output."
Their consensus on growth is still too high, and their read of inflation too low. But at least they are starting to get clued in.
And what do they believe are the key risks? The WSJ notes:
Risk to GDP: Higher-then-expected energy prices were highlighted as the biggest risk to growth.
Crude: Price forecasts were lifted for the fourth time, but easing was seen from current levels.
Housing: Price growth was seen at its lowest in years; some economists see declines in 2007.
Jobs: Economists saw the unemployment rate rising in 2007 and cut forecasts for payroll growth.
See also today’s Econoblog for a good debate on how Oil prices may or may not precipitate a recession: Will Oil History Repeat Itself?.
Economists Paint Gloomier Picture
Outlooks for GDP and Employment Are Cut,
While Concerns About Recession Edge Up
WSJ, August 10, 2006 9:45 p.m.; Page A4
Will Oil History Repeat Itself?
James Hamilton, Stephen P. A. Brown
WSJ, August 10, 2006 5:13 p.m.