What Economic Forecasters Got Right, and Wrong, in 2017

The only purpose of economic forecasts is to make astrology look respectable, according to a saying attributed to the late economist John Kenneth Galbraith. And, yes, some of economists’ early guesses for the year turned out to be off base. Still, the consensus among forecasters when 2017 was young has turned out to be fairly accurate for number of closely watched economic indicators including hiring, output growth and inflation. Here’s how economists did this year for selected economic indicators, comparing the latest available actual figures with the average forecasts in The Wall Street Journal’s January 2017 survey of academic, business and financial economists. Unemployment Rate
Average forecast for December 2017: 4.5%
Actual (as of November 2017): 4.1% The unemployment rate ended 2016 at 4.7%, and economists expected it would drift down to 4.5% by the end of 2017. Instead, it hit 4.5% in March and kept . As of November, it was at its lowest level in 17 years. Hiring
Forecast for average monthly change in nonfarm payrolls during 2017: 166,000
Actual (average for January through November): 174,000 The pace of job gains has been slowing for several years as the U.S. economy approaches full employment. Employers added an average of 187,000 jobs per month in 2016. Economists expected a step down in 2017 and they got one—though not quite as big a slowdown as they had expected. Real Gross Domestic Product
Average forecast for 2017 (year-over-year growth in fourth quarter): 2.4%
Actual (year-over-year growth in third quarter): 2.3% Another close one. For years, economists thought a pickup in economic growth was just around the corner, but temporary accelerations would fade after a quarter or two. They again marked up growth estimates after Donald Trump was elected president, anticipating tax cuts and other fiscal stimulus. Now, the economy is experiencing its best sustained growth in several years, and many forecasters are predicting another solid performance in 2018 thanks in large part to the Republican tax-overhaul legislation. Inflation
Average forecast for annual change in consumer-price index in December 2017: 2.3%
Actual annual change in CPI as of November 2017: 2.2% Forecasters in January thought the consumer-price index would grow more than 2% this year, and they seem to have been right. Inflation was boosted in early 2017 by year-over-year gains in energy prices but hit a soft patch and then stabilized in recent months, with gasoline prices lifted by hurricane-related disruptions. All that was enough to give Federal Reserve officials enough confidence to keep raising short-term interest rates. Fed Rate Increases
Average forecast for 2017: Three rate increases
Actual: Three rate increases Back in 2016, economists expected three federal-funds-rate rate increases but got only one. This year, they got the three increases they expected as the expansion remained on track and the unemployment rate moved below Fed officials’ estimates for its sustainable long-term level. Bond Yields
Average forecast for closing yield on 10-year Treasury notes in December 2017: 2.89%
Actual yield as of Dec. 22: 2.486% Swing and a miss. Economists had predicted rising government bond yields in 2017, but the yield on the benchmark 10-year Treasury note has moved sideways even as the Fed has pushed up short-term rates. One result: The so-called yield curve has flattened, which could be a warning sign for the economy. Crude Oil
Average forecast for December 2017: $56.31 per barrel
Actual price as of Dec. 22: $58.47 per barrel Economists didn’t expect much change for oil prices this year, and crude prices have ended up roughly back where they started after falling in the first half of 2017 and then rebounding in subsequent months. Housing
Average forecast for housing starts in 2017: 1.26 million units
Actual in the 12 months ended November: 1.21 million units Average forecast for national home prices in 2017, fourth quarter over fourth quarter: 4.4% increase
Actual (as of third quarter): 6.5% increase Home builders have started work on fewer residential units than economists had expected as multifamily construction sagged, and home prices have risen faster than anticipated due to tight inventory. The outlook for 2018 is clouded by pending tax-code changes that reduce longstanding incentives for homeownership. Recession Risks
Average forecast for probability of a recession in 2017: 16% Economists saw less than a 1 in 6 chance the expansion that began in mid-2009 would end in 2017. With just a few days to go, it appears the U.S. economy made it through the year without falling into a new recession. RELATED Economic Forecasting Survey What Economic Forecasters Got Right (and Wrong) in 2016 (Dec. 29, 2016) What Economic Forecasters Got Right, and Wrong, in 2015 (Dec. 30, 2015)

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