Economists Predict Lackluster 4Q22 Growth; Fed Algorithm Predicts 4.3%
A Federal Reserve Bank of Atlanta algorithm indicates the economy is experiencing spectacular growth this quarter, while a survey of leading economists indicates the economy currently is growing at a fractional pace.
Consensus forecasts of economists are far from perfect but have been more reliable than the GDPNow algorithm at predicting the quarterly growth rate of U.S. gross domestic product for years. In fact, the GDPNow forecast has been wildly wrong at times over the years. For the last two quarters, however, a period marked by high volatility, the algorithm has been more accurate in predicting growth real-time.
The Fed’s GDPNow forecast is updated two or three hours after the government releases economic data throughout every quarter. GDPNow’s prediction is designed to come closer, as the end of a quarter nears, to the final growth rate announced by the BLS. The Federal Reserve Bank makes it clear that GDPNow is “not an official forecast of the Atlanta Fed.” It’s a running estimate of real GDP growth. No subjective adjustments are made to GDPNow. Rather, the estimate is based solely on the mathematical results of the algorithm.
Although the algorithm’s track record is mixed, it was more reliable than the human experts in the second of 2022 and again in the third quarter, a six-month period beset by multiple anomalies, including supply chain disruption, declining demand for inventory, and an aggressive succession of Federal Reserve rate hikes.
We’re not saying that the GDPNow forecast is a breakthrough in predicting the economy, but the algorithm has been more accurate at predicting that rate of growth in quarterly gross domestic product during this unusual period of high volatility in financial markets as well as the real economy. Tracking developments like this is just one way we help investors amid an ever-changing world.
Thanksgiving shortened the week on Wall Street, with no trading on Thursday and a 1 p.m. ET close on Friday. The Standard & Poor’s 500 stock index ended the week at 4,026.12, losing -0.03% from Thursday, and up +1.53% from a week ago. The index is up +79.94% from the March 23, 2020, bear market low and -16.06% lower than its January 3, 2022, all-time closing high.
The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is a market-value weighted index with each stock's weight proportionate to its market value. Index returns do not include fees or expenses. Investing involves risk, including the loss of principal, and past performance is no guarantee of future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted.
Nothing contained herein is to be considered a solicitation, research material, an investment recommendation, or advice of any kind, and it is subject to change without notice. Any investments or strategies referenced herein do not take into account the investment objectives, financial situation or particular needs of any specific person. Product suitability must be independently determined for each individual investor. Tax advice always depends on your particular personal situation and preferences. You should consult the appropriate financial professional regarding your specific circumstances. The material represents an assessment of financial, economic and tax law at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete, and is not intended to be used as a primary basis for investment decisions. This article was written by a professional financial journalist for Advisor Products and is not intended as legal or investment advice.
©2022 Advisor Products Inc. All Rights Reserved.