Trajectory of Depressive Growth: The Wall Street Journal’s July Survey

Forecasters are disappointing about the April poll (Figure 1). And roughly the third negative quarterly growth forecast in Q2 2022, but the median (and median) forecast is for positive growth, as shown in Figure 2 (although having two consecutive quarters of negative growth is not critical to whether NBER announces BCDC recession). About a fifth of respondents predict at least two consecutive quarters of negative growth starting in late 2022-2023.

Figure 1: GDP as reported in the third edition Q1 2022 (black), January WSJ survey (green), April survey (brown), July survey (red), potential GDP (grey), all in billions of dollars Ch.2012, SAAR , all on a logarithmic scale. Peak-to-trough dates as determined by the NBER are in grey. Source: BEA, CBO (July 2022), WSJ pollvarious vintages, NBER and author’s calculations.

The WSJ’s January review showed that production rose quite quickly, exceeding potential (as estimated by the CBO in May). Just over a month after the extended Russian invasion of Ukraine and the corresponding rise in oil prices, the trajectory has eased slightly, according to an April poll. According to the July survey, the median predicts a material downtrend in the trajectory, with the projected output gap widening to -2.6% by Q2 2023 (based on an assessment of CBO potential, not survey respondents).

There is a noticeable scatter in the forecasts. This is hinted at in Figure 2, which shows the top and bottom observations truncated by 20% (ranking based on 2022 Q4/Q4 growth rates).

Figure 2: GDP according to Q1 2022 third edition (black), Diane Swank/Grant-Thornton (green), Brian Bethune/Boston College (blue), July survey average (red), potential GDP (grey), all in billions 2012 US dollars, SAAR, all on a logarithmic scale. Peak-to-trough dates as determined by the NBER are in grey. Source: BEA, CBO (July 2022), WSJ pollNBER, author’s calculations.

The median response suggests positive growth in the second quarter. The median (not shown) looks similar for 2022 (although the respondent’s median also believes there will be two quarters of negative growth starting in 2023).

Brian Bethune of Boston College is at the top of the sample, trimmed by 20% from 2% for Q4/Q4 2022). Grant Thornton’s Diane Swank forecasts negative second-quarter growth (-1.7% SAAR) followed by sluggish growth, with fourth/fourth quarter 2022 growth of just -0.5%.

The decline in growth prospects is not surprising; The narrative of raising the Fed funds rate to reduce perceived inflationary pressures is evident in interest rate forecasts:

Figure 3: Fed funds effective rate (black), January WSJ poll (green square), April poll (yellow square), July poll (red square), all in %. Peak-to-trough dates as determined by the NBER are in grey. Source: Federal Reserve via FRED. WSJ polldifferent vintages, NBER.

For a more detailed discussion of the survey results, see WSJ article.