March 2018 WSJ Report

Time again to visit WSJ Economic Forecasts. There was a great jobs report last week and other economic data seem to support a strong medium-run economy in the views of the professional forecasters. The only major downside was a sharp decrease in the forecast of first quarter GDP in 2018 which dropped by a third of a percent to 2.52 percent. 

The unemployment rate, which fell below 4 percent with the trough in mid 2019, saw the most optimist changes. This was undoubtedly tied to the jump in payrolls forecasts, which rose by about 20,000 to nearly 200,000 new jobs per month over the next year.  The strong jobs report last week drove both of these changes.

Most other variables moved only slightly. Inflation expectations changed marginally, but mostly converged in the direction of the 2% Federal Reserve target. Crude oil price forecasts also fell modestly.  Housing market expectations for this year and next were mostly unchanged.  The consensus recession probability indicator fell slightly to 13.6 percent.

Finally, we turn to the yield curve spread (the difference between the ten year bond and the federal funds rate) as we have in previous posts. We have an interesting development as short run forecasts through the end of the year see a riding yield curve spread, indicating a steeper yield curve, and the longer horizon (2020) showed a flatter yield curve. This suggests that forecasters are wary of an impending recession in the longer run.