oldfart
Older than dirt
Today's BLS announcement reminded me of my failure to follow up on our forecasting challenge, an oversight I regret and remedy herein. After discussion, contemplation, and some of my son's home brew mead, I decided to generally stick to indicators that the Congressional Budget Office makes predictions on.
The rules are simple:
1. Anyone can participate. You are welcome to give your reasoning or not.
2. You are free to make as many forecasts as you wish. Each forecast will be considered a separate entry. For practical reasons, I expect most folks to make a forecast every month or less frequently. If something weird happens, everybody gets to adjust their predictions; if not, you are free to take another stab at it when you realize your earlier prediction will be off the mark.
3. Obviously, the goal is to make predictions that are close to the mark when the real numbers come in. Anyone beating the CBO projections gets a mention in our Forecasting Hall of Fame. Anyone who beats me, also gets a plate of crawfish etoufee at Joe Patti's in Pensacola.
So here are the measures we will predict and the CBO projections.
1. Interest rate: the December 2014 yield on Treasury ten year notes. According to CBO, the average rate was 2.4% in 2013, and is projected to be 3.1% in 2014 and 3.7% in 2015.
2. Inflation: I'm going to propose two measures here:
a) the "core" CPI for the fourth quarter. This was 1.7% in 2013 and CBO projects it to be 1.9% in 2014 and 2.2% for 2015. We'll forecast the fourth quarter average for 2014.
b) the spread between the 10-year Treasury bill and 10-tear TIPS rates. For the March 2014 auctions, this was 2.070%. We'll forecast the December spread.
3. Budget Deficit: the CBO reports the 2013 deficit to be $680 billion and projects it to be $514 billion in 2014 and $478 billion in 2015.
4. Growth of real GDP fourth quarter to fourth quarter. For 2013 this was 2.1% and CBO projects 3.1% in 2014 and 3.4% in 2015.
5. Employment: We'll use three measures here:
a) Fourth quarter average "official" (U-3) unemployment: CBO lists it as 7.0% for 2013 and forecasts 6.7% for 2014 and 6.3% for 2015.
b) Broader (U-6) unemployment: CBO does not forecast this item. In December 2013 it stood at 13.1% in the BLS report and in March was 12.7%. We'll forecast the December 2014 rate according to BLS.
c) Employment-to-population ratio: Again from BLS, this was 58.6% in December 2013 and 58.9% in March. We'll forecast the rate for December 2014.
Without further ado, here are my forecasts:
1. 10-year Treasury yield: 2.9%
2. Inflation: core CPI 1.7% and Treasury--TIPS spread 2.3%
3. Budget deficit: $535 billion
4. Real GDP fourth quarter to fourth quarter growth: 2.4%
5. Employment: U-3 at 6.8%, U-6 at 12.4%, and employment-to- population ratio of 60.4%
I remind everyone of Fiedler's Four Rules of Economic Forecasting:
1. It is very difficult to predict, especially the future.
2. Every time you make a prediction you know you are wrong, just not in which direction.
3. He who lives by the crystal ball learns to eat ground glass.
4. If you ever nail it; never let them forget it!
So let the games begin!
The rules are simple:
1. Anyone can participate. You are welcome to give your reasoning or not.
2. You are free to make as many forecasts as you wish. Each forecast will be considered a separate entry. For practical reasons, I expect most folks to make a forecast every month or less frequently. If something weird happens, everybody gets to adjust their predictions; if not, you are free to take another stab at it when you realize your earlier prediction will be off the mark.
3. Obviously, the goal is to make predictions that are close to the mark when the real numbers come in. Anyone beating the CBO projections gets a mention in our Forecasting Hall of Fame. Anyone who beats me, also gets a plate of crawfish etoufee at Joe Patti's in Pensacola.
So here are the measures we will predict and the CBO projections.
1. Interest rate: the December 2014 yield on Treasury ten year notes. According to CBO, the average rate was 2.4% in 2013, and is projected to be 3.1% in 2014 and 3.7% in 2015.
2. Inflation: I'm going to propose two measures here:
a) the "core" CPI for the fourth quarter. This was 1.7% in 2013 and CBO projects it to be 1.9% in 2014 and 2.2% for 2015. We'll forecast the fourth quarter average for 2014.
b) the spread between the 10-year Treasury bill and 10-tear TIPS rates. For the March 2014 auctions, this was 2.070%. We'll forecast the December spread.
3. Budget Deficit: the CBO reports the 2013 deficit to be $680 billion and projects it to be $514 billion in 2014 and $478 billion in 2015.
4. Growth of real GDP fourth quarter to fourth quarter. For 2013 this was 2.1% and CBO projects 3.1% in 2014 and 3.4% in 2015.
5. Employment: We'll use three measures here:
a) Fourth quarter average "official" (U-3) unemployment: CBO lists it as 7.0% for 2013 and forecasts 6.7% for 2014 and 6.3% for 2015.
b) Broader (U-6) unemployment: CBO does not forecast this item. In December 2013 it stood at 13.1% in the BLS report and in March was 12.7%. We'll forecast the December 2014 rate according to BLS.
c) Employment-to-population ratio: Again from BLS, this was 58.6% in December 2013 and 58.9% in March. We'll forecast the rate for December 2014.
Without further ado, here are my forecasts:
1. 10-year Treasury yield: 2.9%
2. Inflation: core CPI 1.7% and Treasury--TIPS spread 2.3%
3. Budget deficit: $535 billion
4. Real GDP fourth quarter to fourth quarter growth: 2.4%
5. Employment: U-3 at 6.8%, U-6 at 12.4%, and employment-to- population ratio of 60.4%
I remind everyone of Fiedler's Four Rules of Economic Forecasting:
1. It is very difficult to predict, especially the future.
2. Every time you make a prediction you know you are wrong, just not in which direction.
3. He who lives by the crystal ball learns to eat ground glass.
4. If you ever nail it; never let them forget it!
So let the games begin!