In general, we observe WSJ forecasters responding to favorable economic data. Consensus GDP forecasts through Q4 of 2018 are all above 2.5 percent, with inflation just above 2 percent through the same time period. However, the longer range projections suggest an economic slow down approaching.
Sticking to the good news: housing price and housing start expectations are up. In addition, consensus unemployment figures dropped yet again, with the expected consensus low occurring in the middle of 2019 at 3.8 percent. The recession probability dropped a full percentage point to 13 percent.
Unfortunately, there are some more expected headwinds. Crude oil prices rose sharply in short run forecasts, with the June 2018 jumping almost 3 dollars to 58.55. The longer run forecasts of oil prices also rose, but by smaller amounts. However, the most concerning bit about current consensus expectations is the flattening of the yield curve. I have mentioned this several times in previous blog posts in my November and December updates. Here is a graph to illustrate the point with the newest data:
The graph above shows the difference between the consensus forecasts of the ten year bond rate and the federal funds rate. The color shade represents different future dates the darkest being the furthest in the future. We observe an abrupt jump down for the 2018 and 2019 spreads. A flatter yield curve has been cited as an indicator for a coming recession, and these forecasts suggest that tightening will happen over the next year or so.
The WSJ forecasters consensus is that 2018 should be a pretty strong economic year, but this expansion is heading towards its close as we move to 2019.