JUNE
2004

 

By
Larry DeBoer
 
Professor of
Agricultural Economics
Purdue University

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06-24-04

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It's easy to find out what's going on in the economy now. You can get gross domestic product (GDP) growth on the Bureau of Economic Analysis Web site, at http://www.bea.gov/. Growth above inflation was 4.4 percent in the first quarter. You can see the inflation and unemployment rates on the Bureau of Labor Statistics Web site, at http://stats.bls.gov (nope, no "www"). Inflation in the 12 months through May was 3.1 percent, and the unemployment rate in May was 5.6 percent.

But suppose you don't want to know what's happening now, but what's going to happen for the rest of 2004 or in 2005? The easy answer is, forget it, nobody knows. Still, a lot of people in business and government need to make educated guesses about the future. Some of these guesses are published on the World Wide Web.

Start with the professors. There's a forecasting group at the University of Michigan called RSQE, which stands for Research Seminar in Quantitative Economics. Its Web site is at http://www.umich.edu/~rsqe/. The group publishes a forecast four times a year, most recently in mid-May. There's a summary of what the professors think will happen, and a lot of numbers.

What do they think? They've got GDP growth at 4.6 percent above inflation for this year and 4.1 percent for next year. Inflation is 2.5 percent in '04, 2.2 percent in '05; the unemployment rate is 5.6 percent in '04 and 5.2 percent in '05. GDP will continue to grow like it has been growing, inflation will fall with the end of the oil price spike and the unemployment rate will fall because the growing economy will (finally!) create a lot of jobs. The 2005 numbers are nearly identical to the numbers in 1997, one of those great years before the recession.

Now, on to the business forecasters. The Federal Reserve Bank of Philadelphia does a survey of several dozen business economists four times of year, which is posted at http://www.phil.frb.org/econ/spf. There's one from the end of May on its Web site now. The forecasts come from companies, such as Merrill Lynch and Verizon, and groups, such as the U.S. Chamber of Commerce and the National Association of Home Builders.

The forecast looks familiar: GDP growth of 4.6 percent in 2004 and 3.9 percent in 2005; inflation of 2.7 percent this year and 2.2 percent next year; and unemployment at 5.5 percent this year and 5.3 percent in 2005. It's a little less optimistic than RSQE, but still very similar to the expansion years of the 1990s.

Finally, the government. To project the effect of new tax and spending laws on the federal budget, the Congressional Budget Office needs a forecast of the economy. It's only updated twice a year, so if you go to the CBO Web site, http://www.cbo.gov, you'll see a forecast from January. The CBO thought then GDP would grow 4.8 percent this year and 4.2 percent next year; inflation would be 1.6 percent this year and 1.7 percent next year; and the unemployment rate would be 5.8 percent this year and 5.3 percent next year. It was more optimistic about inflation in January, before the oil price hikes.

What's different about the CBO is that it projects all these numbers through the year 2014. Nobody else has the nerve to try that. Of course, there are no statements such as, "in January 2009, a recession will begin, and it will last until March 2010." Instead, the CBO predicts the average growth, inflation and unemployment figures for the long run. For 2006 to 2009, it predicts GDP will grow 2.8 percent above inflation, the inflation rate will be 2.2 percent and the unemployment rate will be 5.1 percent. After we fully recover from the recession, GDP will settle into more moderate growth, the inflation rate won't change much and the unemployment rate will fall some more from where it stands now.

These long-run numbers can come in handy. For example, if I'm trying to figure out how my savings will hold up for retirement 20 years from now, I'll need an inflation number. The CBO guesses that 2.2 percent is about right.

So, there you have it. Three respectable economic forecasts, free for you and me on the World Wide Web. What a deal!

 

 

Writer: Larry DeBoer,
Editor: Olivia Maddox,