No one said it would be easy to forecast an economy, coming out of a pandemic, after unprecedented fiscal stimulus and then a steep interest-rate-hike campaign.
But, wow, Wall Street just has had it wrong on the U.S. economy in 2023 from the beginning to the end, and often in between. Even after the full year took place, Wall Street was still wrong-footed by the GDP data for the fourth quarter released Thursday showing 3.3% growth, well ahead of the 2% consensus.
(The Federal Reserve also got it wildly wrong, but fortunately for the rate setters, they don’t forecast quarterly data. The Fed’s policymakers came into 2023 expecting 0.5% growth for 2023, and GDP ended up rising 2.5% last year.)
The easiest way to travel back down memory lane is through something the Atlanta Fed produces, its “nowcast” on the economy. The nowcast is simply a model, using monthly economic data that gets released, that aims to forecast what the initial read of GDP is. The Atlanta Fed, while doing so, also tracks the Wall Street consensus by publishing the Blue Chip economic consensus, as well as the average of the highest and lowest forecasts.
So let’s first go to the first quarter, when the initial reported GDP growth was 1.1%. As the chart shows, when the year began, Wall Street wasn’t expecting any growth at all in the January-to-March period. Some were forecasting a contraction of nearly 2%. But as the quarter went on, Wall Street did wise up, and the consensus as well as the Atlanta Fed nowcast got it right. (After revisions, first-quarter GDP growth actually was revised quite a bit higher, to 2.2%.)
Onto quarter two — GDP as first reported was 2.4% in the April-to-June period. Again, Wall Street came into the quarter not expecting any growth at all. And it struggled even as the quarter went along to catch up to the growth that was actually happening.
Onto quarter three, when the inital reading of GDP was a stunning 4.9%. In late June, Wall Street wasn’t expecting any growth at all! And again Wall Street got flat-footed by the strength of the recovery, still coming up short.
And now to Thursday’s report, showing GDP growth of 3.3% in the October-to-December timeframe. At least this time, Wall Street did enter the quarter expecting the economy to grow. But by far less than the actual, and a full quarter of seeing economic data did not get Wall Street ready for the numbers that came out.