Other People's Crystal Balls

We're playing catch up today in tracking how well Brian Wesbury's and Robert Stein's lone early prediction for a much higher than anticipated GDP for the second quarter of 2008.

At the time, prior to the advance release of the 2008Q2 GDP data on 31 July 2008, the consensus among most economists was that the annualized inflation-adjusted GDP growth rate for the quarter would come in around 2.2%. By contrast, Wesbury and Stein anticipated that the annualized growth rate of Real GDP in 2008Q2 would be 3.0%.

GDP data is released in three stages by the U.S. Bureau of Economic Analysis at the end of each of the three months following the end of the economic quarter. The three stages are known as the Advance, Preliminary and Final release. Each release following the initial Advance release is based on progressively more complete data, which means that the data reported in earlier releases may be revised in subsequent ones. Beyond that regular process, the BEA also periodically revises data going back for several years, again as more economic information comes to light. The advance release of GDP data for 2008Q2 also revised GDP data going back to 2005.

Looking at just 2008Q2, the advance release of GDP data for the second quarter of 2008 did not look good for Wesbury and Stein. The recorded growth rate of GDP for the quarter came in at 1.9%, well below what they had predicted. That figure represents the annualized growth rate obtained in the U.S. economy's Gross Domestic Product growing from 11,646.0 billion dollars (adjusted for inflation to be in "chained" 2000 US dollars) to 11,700.6 billion dollars.

To have perfectly predicted GDP for the quarter, the level of GDP would have to have come in at 11,732.4 billion "chained" US dollars. So, it initially appeared that Wesbury and Stein missed the target by a very wide margin.

In response to this apparent miss, Brian Wesbury and Robert Stein held their ground on their initial forecast. They anticipated that strong U.S. exports would power the GDP figure to a much higher level in subsequent releases. He was rewarded as the preliminary release of 2008Q2 economic data supported his forecast. The preliminary release showed that Real GDP had grown to 11,740.3 billion "chained" 2000 USD, which corresponds to an annualized growth rate of 3.3% for the quarter.

And so here we are! A little over a week away from the final release of GDP data for the second quarter of 2008. We'll soon know, at least as well as we can pending some revision yet to be made years in the future, how well Wesbury and Stein's forecast have held up.

In the meantime, we'll end this post by presenting our latest GDP bullet charts, which provide a visual reference of the relative strength of the three most recently ended quarters against a temperature gauge backdrop indicating the performance of the U.S. economy since 1980:

The one-quarter GDP Growth Rate bullet chart illustrates the data as it's most often reported in the BEA's reports and in the media. We provide the two-quarter GDP Growth Rate bullet chart as it better indicates the overall trends in U.S. economic growth over the preceding one-year period.