Crude oil prices stayed unexpectedly low this year and
those low prices didn’t prove as beneficial as many had hoped. A year ago, the
price of oil had collapsed but many expected it to gradually rebound. Lower gas
prices usually provided a boost to consumers, and higher gas prices
certainly hurt consumers, but the boom that many had hoped for failed to
materialize. In other words, estimates of oil prices and inflation rates were
too high. So, it appears, were estimates of GDP growth (though we won’t have final
figures until next month). To assess the predictions, we looked back at the
forecasts made in January’s Wall Street Journal survey of economists. The
forecasts are presented here, in approximately the order of worst forecast to
best.
Crude Oil
Average forecast
for December 2015: $63/barrel
Actual as of December 29: about $38/barrel
None of the forecasters in the survey saw the price of
oil being below $40 this month. Throughout the year, economists have continued
to forecast that oil prices would regain some of their lost ground and
have been continually disappointed.
Inflation (consumer
price index, annual change)
Average forecast
for December 2015: 1.6%
Actual as of November 2015: 0.4%
With higher oil prices, the U.S. inflation rate would
certainly be higher. While there’s still a chance for December’s inflation rate
to come in higher than November’s, it’s looking likely that economists will
have significantly overestimated the amount of inflation in 2015. The Federal
Reserve, it’s worth noting, also expected inflation to bounce back more
sharply. In December 2014, Fed officials forecast an inflation rate of between
1% and 1.6%.
Federal funds rate
(midpoint of target range)
Average forecast
for December 2015: 0.89%
Actual: 0.375%
Most forecasters expected the Federal Reserve to be
further along the path of raising interest rates by now. Of course, that’s
largely because of the Fed’s own signals. In December 2014, the Federal Open
Market Committee was planning for higher rates by now. The median Fed official
forecast the rate would be at 1.125% at the end of 2015 (consistent with a
range of 1% to 1.25%). So forecasters did a better job forecasting Fed policy
than the Fed itself. But they didn’t go far enough in doubting the Fed’s stated
plans. One key reason the Fed held off raising rates: Inflation stayed so low.
Real Gross
Domestic Product (fourth quarter-over-fourth quarter, percent change)
Average forecast
for fourth quarter of 2015: 3%
Actual: due in January. 2.1% as of the third quarter.
The first look at data for the fourth quarter of 2015
won’t be published until January, but it appears likely that forecasters were
too optimistic. Comparing the third quarter of 2015 to the same period in 2014,
the economy only grew 2.1%. Once again, it’s possible to identify oil as the
culprit for a forecasting miss. Many had thought low oil prices would give
consumers a significant lift, but whatever lift people got from low oil doesn’t
appear sufficient to power the economy to 3% growth.
Home prices
(Federal Housing Finance Agency home price index, percent change from year ago)
Average forecast
for fourth quarter of 2015: 4.1%
Actual as of October 2015: 6.1%
It’s becoming something of a cliche to view economists as
generally too optimistic, and the reputation is partially fair because few
expected the recovery from the recession and global financial crisis of 2007 to
2009 to take this long. But when it came to home prices in 2015, it appears
economists weren’t nearly optimistic enough. They projected home prices would
climb about 4.1% this year, but as of October, the home price index was 6.1%
higher than a year ago.
Unemployment rate
Average forecast
for December 2015: 5.2%
Actual as of November 2015: 5%
Forecasts for the labor market appear to have done pretty
well. Expectations that the unemployment rate would continue its decline proved
correct. The unemployment rate could still tick down, or up, slightly when the
final December figure is released next week, but it appears economists did
fairly well on this one.
Payrolls (average
monthly change in total nonfarm employment)
Average forecast
for 2015: 231,000
Actual for 12 months through November: 219,000
Economists appear to have been very close with their
forecasts that the economy would continue to add somewhat over 200,000 jobs a
month.
Wages (average
hourly wages, annual percent change)
Forecast for
December 2015: 2.6%
Actual as of November: 2.3%
It also looks like economists were right to expect some acceleration
in wage growth. December figures will be released along with the next monthly
jobs report. Wage growth was running at 2.3% in November and 2.5% in October.
Slightly stronger wage growth in December and this forecast could be right on
the nose.
Recession (Odds of
recession starting in 2015)
Forecast for 2015: 12%
Actual: highly unlikely that a recession started in 2015
The odds of a new recession starting in 2015 were deemed
to be very low, and it looks like economists got that right. The National
Bureau of Economic Research determines, with quite a lag, when the U.S. enters
recession. For example, the last recession officially began on December 2007,
but the NBER waited until December 2008 to announce that determination. The
NBER generally waits until the most important data has all been produced and
gone through some revisions so that it can be confident in its calls.
It’s always possible today’s data will be revised to show the economy was much
worse than it looked initially. But the ongoing strength in the labor market
and expansion of GDP make it pretty unlikely that any point in 2015 will be
considered the start of a recession.
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here to access the full article on The Wall Street Journal.