The Outlook for the U.S. Economy

Larry DeBoerDepartment of Agricultural Economics

Purdue University

August 16, 2013

GDP Unemp- Int. Rate Int. RateGrowth Inflation loyment 3 mo. T 10 yr T

Aug '13 for 2014 2.3% 2.0% 6.7% 0.1% 2.2%

Aug '12 for 2013 2.5% 2.2% 7.9% 0.1% 1.5%Actual 2013 1.4% 1.8% 7.4% 0.1% 2.3%Error 1.1% 0.4% 0.5% 0.0% -0.8%Forecast record since August '91 (23 August forecasts)Mean Error -0.1% 0.0% 0.1% 0.5% 0.4%Mean Absolute Error 1.2% 0.9% 0.6% 0.6% 0.5%

Mean error shows the average of the differences between forecasts and actuals.A big positive error and an equally big negative error would sum to a zero average. Over 23 forecasts, on average I underpredicted growth by 0.1 points.Mean Absolute Error shows the average of the absolute differences between forecasts and actuals. Over 23 forecasts, on average I missed GDP growth by plus or minus 1.2 points.

Forecast record

Some Macroeconomic Forecasts for 2014

GDP Unemp- Int. Rate Int. RateGrowth Inflation loyment 3 mo. T 10 yr T

DeBoer (8/13) 2.3% 2.0% 6.7% 0.1% 2.2%CBO (2/13) 2.6% 1.9% 7.8% 0.2% 2.7%RSQE (6/13) 2.7% 1.4% 7.0% 0.2% 2.2%Prof. Fcstrs. (5/13) 2.8% 2.2% 7.1% 0.1% 2.5%Current: June/July '13 1.4% 1.8% 7.4% 0.1% 2.3%

DeBoer: Larry DeBoer, Purdue University, August 2013CBO: Congressional Budget Office, February 2013RSQE: Univ. of Michigan Research Seminar in Quantitative Economics, June 2013Prof. Fcstrs.: Philadelphia Fed Survey of Professional Forecasters, May 2013

Real GDP Growth

Component 2012-13 2014 Forecast

Consumption 1.8 2.5Res Investment 14.9 14.0Bsns Investment 2.4 4.0Government -2.0 1.0Exports 1.4 3.0Imports 1.8 5.0GDP 1.4 2.3

GDP Component Growth

Real Consumer Spending

Consumer Sentiment (U Mich)

7/13: 85.1

Household Debt Payments, Percent of Personal Income

Monthly Supply of Homes and Real Home Price Percent Change (Quarterly Averages)

“Seven Month Rule-of-Thumb”

Housing Starts

Building Permits

Mortgage Interest Rate

Capital Goods Orders Growth

Corporate Bond Interest Rates, Less Risky (AAA) and More Risky (BAA)

AAA

BAA

Interest Rate Spread, Corporate BAA - AAA

Real Federal and State/Local Government Purchases Growth

Federal

State/Local

Federal Budget Balance, percent of GDP (quarterly)

Real Export and Import Growth

Exchange Rates: Euros and Yuan per Dollar

Chinese Yuan

European Euros

Real GDP Growth Forecast, 2014 (IMF)

Real GDP GrowthLess than 1%1% to 4%4% to 8%8% or MoreNo data

Unemployment Rate

Labor Force Growth

Employment-Population Ratio

CPI Inflation Rates

All Items

Core (less foodand energy)

Monetary Base (Cash plus Bank Reserves)

QE1

QE2

QE3

Federal Funds Interest Rate

Who will chair the Fed?

Janet Yellen Lawrence Summers