The Atlanta Fed's macroblog provides commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues.

Authors for macroblog are Dave Altig, John Robertson, and other Atlanta Fed economists and researchers.

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April 07, 2005

News Flash! Forecasters Got It Wrong!

From the Wall Street Journal Online:

Last summer, one-third of economists who participated in The Wall Street Journal Online's economic forecasting survey said a recession would follow if crude-oil stuck in between $50 and $59 a barrel -- exactly where futures prices have traded since late February.

But the economy isn't in peril today and, in the latest forecasting survey, the economists have changed their minds. None feel that $50 oil will trigger a recession. Thirty-one percent said they feel oil would have to be sustained at $80-89 a barrel to snuff out growth, while 48% believe crude would have to top $90.

Ahh, but humbled is not defeated, and so the prognostication goes on.

Despite some recent spikes in oil prices, the economists don't expect energy prices to reach levels that would endanger the economy. In crafting their forecasts for growth this year, the economists, on average, say they have assumed that oil would remain at around $47.46 a barrel.

Indeed, the economists have kept their forecasts for economic growth relatively stable over recent months, even as oil has hit new nominal highs. This month, their forecasts for gross domestic product growth in the first quarter were nudged higher to an average 4.1%, up from the 4.0% rate they predicted when asked last month. For the balance of 2005, they put growth at an average 3.6% rate.

The price outlook has not changed much either, according to the experts.

Economists bumped up their forecasts for the consumer-price index this month amid high oil prices, predicting the consumer-price index will rise 2.6% by May of this year and be at 2.5% in November. In March's survey, the CPI was seen growing at a stable 2.4% rate in May and November.

What about the federal funds rate, you ask?

Presently, the economists expect the Fed will raise its key federal-funds rate to 3.25% by June and to 3.75% or 4% by the end of the year. They have nudged their forecasts for the fed-funds target slightly higher over the past several months.

And employment?

Employers are expected to add, on average, 189,000 jobs a month to nonfarm payrolls over the next 12 months. That was down slightly from the 196,000 forecast in March.

These averages represent the responses from 56 private sector economists, taken over the April 1-5 period.  Other interesting tidbits (available in the survey detail provided to subscribers):

-- 56% of the respondents think that the FOMC should retain the "measured pace" language at the May meeting.

-- 71.4% of respondents say the FOMC's response to inflationary pressures has been about right.

-- 50% of the respondents give Alan Greenspan an A for his performance in conducting policy; one-third say the grade should be a B.

April 7, 2005 in Data Releases , Energy , Federal Reserve and Monetary Policy | Permalink


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If 1 out of 3 economists said a recession would follow if crude-oil stuck in between $50 and $59 a barrel doesn;t that mean 2 out of 3 got it right?

Posted by: confused guy | April 07, 2005 at 09:01 PM

CG --

Fair point. The real issue is the dramatic change in the distribution of answers. In August, the majority of respondents said a sustained price of $70 or less would result in a recession. Less than 5% believe that now.

The details are posted at Angry Bear: http://angrybear.blogspot.com/2005/04/oil-prices-and-recession.html

Posted by: Dave Altig | April 08, 2005 at 01:50 PM

I don't believe a sustained price per barrel at any level will, in itself, result in a recession.

That doesn't mean, though, that I can conceive of a reasonable macro model that, when youo adjust it for a higher expected cost of materials produces a higher growth rate, all other factors remaining equal.

In fact, looking at the expectation for greater-than-sustained employment, I'm still trying to figure out where that 3.6% growth is going to come from. Let alone why FedFunds will be higher than the growth rate.

Posted by: Ken Houghton | April 09, 2005 at 08:24 PM

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