We heard from Alan Greenspan at the NABE conference earlier today and also speaking was Douglas Elmendorf of the Congressional budget office. They’ve lowered their forecasts for potential US output in 2017 by over 7% from their original prediction in 2007. Around 5.25 percentage points of that is due to a reevaluation of the economic trends leading up to 2007 and the rest is a result of the recessions “long shadow”
“It’s a reassessment, from our perspective, of what the underlying growth rates in key variables of the economy are,” he said
He says that estimates for growth and the recovery have been overstated as a number of trends were underestimated, including demographic shifts, number of hours worked that were changing before the recession.
Whichever way shape or form you look at it the picture has fundamentally changed since the house of cards started to fall in 2007, and it just shows that you can never see every possible angle when forecasting. The problem is that the market, politicians and everyone else relies on those forecasts to price in the future and as we know they are not entities that want to hear that it’s going to take decades to recover, despite that probably being the case.
The CBO will release details of its revised estimates over the next few weeks.
Full story from WSJ here
