GDP forecast update

Here is my updated forecast for U.S. real GDP growth (chart below). My model doesn't use assumptions about any economic variables, the behavior of households, fiscal policy, etc.: it just uses cold hard data. This data in turn is supposed to lead the state of the economy by a few quarters.

A few comments:

• For the next twelve months, real GDP will grow by (1%) 1.1% according to my model. This is much below the consensus.
• Although most comentators have already declared the end of the recession, my model says we could see negative growth in some quarters.
• Don't be too alarmed by the huge drop forecasted for the last quarter of 2010. The model isn't supposed to be able to do well that far in the future (it does best at a horizon of 6 months or so).
  

So I hope my readers will not be surprised by disappointing GDP figures, notably starting mid-2010.

Note: the green bands represent the 90%, 75% and 50% confidence around the central forecast.

See below for back-testing against other forecasters for the 2005-2008 period. The model fares much better when 2008 is included as it predicted minus 2% growth for 2008, while no other economist polled by the WSJ called for negative growth. I called my model VAR(30).

ranking among WSJ-polled forecasters

Firm	Average absolute error (%)		Rank		Excluding 2008 (%)		Rank
VAR(30)		0.52		1		0.57		16
UCLA Anderson Forecast		1.13		2		0.22		1
Merrill Lynch		1.14		3		0.43		7
UBS		1.17		4		0.34		2
The Northern Trust		1.24		5		0.50		10
Lehman Brothers		1.24		6		0.50		11
Standard and Poor's		1.25		7		0.42		4
Vanderbilt University		1.26		8		0.43		6
Perna Associates		1.27		9		0.50		12
Decision Economics Inc.		1.28		10		0.48		8
Goldman Sachs & Co.		1.28		11		0.58		17
Global Insight		1.28		12		0.42		5
Swiss Re		1.32		13		0.51		13
Maria Fiorini Ramirez Inc.		1.35		14		0.54		14
Econoclast		1.36		15		0.36		3
Morgan Stanley		1.38		16		0.95		38
Credit Suisse		1.39		17		0.73		26
Wells Fargo & Co.		1.40		18		0.61		18
Mortgage Bankers Association		1.45		19		0.64		21
Comerica Bank		1.48		20		0.65		22
RSQE, U. of Michigan		1.48		21		0.55		15
Median Survey forecast		1.50		22		0.64		20
FedEx Corp.		1.55		23		0.61		19
The Conference Board		1.55		24		0.71		25
Wachovia Corp.		1.55		25		0.48		9
Barclays Capital		1.58		26		0.69		24
Economic Analysis		1.60		27		0.75		28
Bank of America		1.61		28		0.83		29
High Frequency Economics		1.62		29		0.88		35
Keystone Business Intelligence India		1.63		30		0.85		32
AllianceBernstein		1.64		31		0.74		27
Hanmi Bank		1.67		32		0.87		34
Wayne Hummer Investments LLC		1.67		33		0.67		23
Nomura Securities International Inc.		1.69		34		0.86		33
National City Corporation		1.76		35		0.85		31
Moody's Investors Service		1.77		36		0.94		36
Eaton Corp.		1.77		37		0.83		30
Bear Stearns & Co. Inc.		1.83		38		1.02		39
Deutsche Bank Securities Inc.		1.84		39		1.13		41
Macroeconomic Advisers		1.84		40		0.94		37
National Association of Realtors		2.09		41		1.13		40