Blue Chip Consensus: Weak Recovery Underway
July 12 - Recent consumer confidence, spending and labor market data have raised questions about whether the economy is losing momentum, and these uncertainties have been reflected in recent financial market developments.
The latest Blue Chip economic survey* released today reflects these concerns for the unemployment outlook but not the GDP forecast.
According to the latest Blue Chip, top private sector forecasters think that the recession will be declared over possibly in the second quarter but more likely in the third quarter by the National Bureau of Economic Research (which determines the beginning and end dates of any U.S. recession).
On average, the Blue Chip reports, forecasters expect that the U.S. economy is entering into positive territory this quarter and growth will pick up very, very gradually throughout the end of the year. Real GDP is expected to edge forward in the third and fourth quarters by, respectively, 1.0% and 1.6%, after declining by an estimated 1.8% in the second quarter.
But improvement in the economy will not be enough to turn around labor markets. Economists have revised down their forecasts in the Blue Chip's survey, and the unemployment rate is expected to continue to head up for awhile, possibly until early next year.
In terms of the year-year outlook, the Blue Chip Consensus forecast is essentially unchanged: real GDP will decline by 2.6% this year and increase by 2.0% next year.
How does the Blue Chip stack up? For the second quarter, we won't have an official figure until the end of the month, but here is what we know so far: consumer spending has been disappointing, business investment has not returned to normal, housing remains very weak, but initial signs of foreign trade trends suggest that it may have contributed positively to growth. For the third quarter, the Blue Chip average forecast of 1.0% probably should be read as closer to zero because of the large downside risks to the forecast.
Today's Blue Chip forecast is interesting for other reasons. The administration is currently in the process of revising its Mid-Session Review, which includes an update of its economic forecast. If it chooses to be in line with the Blue Chip, the administration will have to make a dramatic change in its forecast, which was made late last year before it was evident how weak the economy was. The following table compares the latest Blue Chip with the current (but old) administration forecast of real GDP (% change, yr-yr):
Real GDP Forecasts
Latest BChip -2.6 2.0
Admin (Feb) -1.2 3.2
*The Blue Chip, an average of some 50 top private sector forecasters, is considered the proxy for private sector forecasts and is often used as the private sector benchmark to be compared to the official forecasts of the administration and Congressional Budget Office.