U . S . F orecast
1.9%, putting full-year growth at just 1.6%. There has been solid job growth, but even that has been insufficient to keep up with working age population growth. The recovery has endurance but no strength mid-way through its 8th year.
Dark. That would be the most euphemistic way that opponents of the president’s administration would describe it. The first few weeks of the new administration have thus far been erratic, veering wildly from issue to issue. We have already had a court scene, with more likely to come. And tweets—lots of tweets. Even typically routine processes such as the approval of cabinet appointments have become full-on issues, with Democrats resisting nearly all of the president’s nominees. This is a stark contrast to the first week of the Obama administration; in 2009, ten nominees were confirmed in the first week, though not all of President Obama’s nominees sailed through or even made it to a vote. Democrats cannot alone stop any appointments due to the change they made to Senate procedural rules to get the Affordable Care Act passed. This will allow Republicans to approve with a simple majority, although the Democrats can continue to delay the process. With many wealthy candidates requiring a longer vetting process, the new presidency will continue with only a skeletal administration in place, ensuring that the wild ride will last even longer.
The final scene of Mr. Toad’s Wild Ride, as mentioned previously, takes place in hell. It doesn’t take much digging to find people who will quickly characterize the Trump administration as hellish. And even those who are neutral or support the administration must feel somewhat bedeviled by how the initial weeks of the Trump presidency have been playing out. Those of us tasked with predicting how the future will look must somehow peer through the smoke, ignore the smell of sulfur, and try to see the world beyond this harrowing scene. While I worked on this forecast, if I closed my eyes, I could still see the little demons from Mr. Toad’s Wild Ride hopping up and down and hear them cackling in delight—this time taunting me to try and figure out how this might all unfold for the U.S. economy. However, I also recall from that ride, on my first trip to Disney World, the car emerged from hell, bursting through the gates and into the bright Florida sunshine. I still see a similar ending for Mr. Trump’s Wild Ride, 6
U.S. Forecast | February 2017
with the U.S. economy emerging, after this hellish start to his administration, into a brighter future of faster economic growth—demons be damned.
ANXIOUS INDEX Fear of Recession Slips to Lowest Level Since 2015 The most recent release (1st quarter of 2017) of the Survey of Professional Forecasters by the Federal Reserve Bank of Philadelphia suggests that the 37 forecasters surveyed for the publication put an 11.21% chance that a decline in real GDP will occur in the 2nd quarter of 2017. This quarter’s release reflects a further decrease in forecasters’ anxiety over the 4th quarter’s survey. It should be noted that this is the first survey that has been taken since the presidential election and, despite the wild ride, it appears the Trump administration’s expected policies have lowered fears of a recession. One section of the Survey of Professional Forecasters asked panelists to estimate the probability that real GDP will decline in the quarter in which the survey is taken, as well as the probabilities of a decline in each of the following four quarters. The anxious index (a term coined by The New York Times reporter David Leonhardt) is the probability of a decline in real GDP in the quarter after a survey is taken. In the survey taken in early February of the 1st quarter of 2017, the index stands at 11.21, which means that forecasters believe there is an 11.21% chance that real GDP will decline in the 2nd quarter of 2017.
The forecasters also report a 7.68% chance that we are currently (as of the 1st quarter of 2017) experiencing a contraction in real GDP—more than two points lower than the probability the forecasters assigned for the 4th quarter of 2016. According to the panel, the probability that real GDP growth will turn negative is averaging around 14.92% through the end of the 2nd quarter of 2018, indicating that the forecasters’ assignment of probability for a contraction in real GDP in the upcoming year is the lowest given since 4th quarter of 2015. Figure 1 plots the historical values of the anxious index, where the gray bars indicate periods of recession in the U.S. economy. The current level of the anxious index is more than two points lower than the average level during the economic recovery (13.45).