October 2017 WSJ Forecasts

The latest WSJ economic forecasts are out, and they contained only a few negatives compared to the September edition. Major indicators of economic weakness were higher oil prices and lower housing starts, and Q3 GDP growth. The average third quarter GDP growth forecast dropped by about 0.25 percentage points, but this was offset by an increase in fourth quarter growth. The declines for housing starts were not very large. However, oil price forecasts all shot up by a dollar or more.

On the bright side, the spread between the federal funds rate and ten-year bonds tightened indicating less perceived economic risk over through 2019. Annual GDP growth increased across the board, though not by much. The consensus is for more than 2 percent growth through 2019. We also continue to see declines in the predicted unemployment rate, and the decline was stronger for the longer horizon indicating that forecasters are skeptical about a quick reversal in the job market tightens. 

Last month I discussed the likelihood of recession based on unemployment forecasts. The recession probability dropped a little (almost a quarter of a percent), and payrolls increased. The unemployment trough still is timed for the end of 2018, but the 2019 forecasts dropped more than the 2018 forecasts, which suggests that the window for the pivot point is expanding. That is, there is more uncertainty about when the labor market and the economy will start to contract.