The economic news in recent weeks suggests that the recovery has hit a rough patch, but at least one forward-looking review of the macro trend says the rearview mirror may be misleading. The 35 economists in yesterday’s update of the biannual Livingston Survey—the longest-running continuous set of predictions by dismal scientists—see moderately improving conditions in the second half of this year.
U.S. real (inflation-adjusted) GDP will rise at an annual rate of 3.2% in the six months through December 2011, according to the forecasters, who are surveyed twice a year by the Federal Reserve Bank of Philadelphia. That compares with an expected rise of 2.2% in this year’s first six months. The survey participants also predicted that unemployment rate will slip in the months ahead, albeit slightly, falling to 8.6% by the end of this year, down from the reported 9.1% rate as of last month.
Inflation, by contrast, will rise moderately in the months ahead. The Livingston Survey forecasters anticipate consumer prices will increase by 3.1% for all of 2011, up from the previous estimate of 1.6%, as per the forecast in the December survey.
The Livingston data provides a bit of optimism about the next phase of the economy at a time when optimism suddenly seems to be in short supply. But as of yet, the optimism, whether in the Livingston survey or elsewhere, doesn’t reflect the actual numbers reported in recent weeks.
For example, the Aruoba-Diebold-Scotti (ADS) Business Conditions Index, which is also maintained by the Philly Fed, continues to issue warnings, albeit mildly so. This index is continuously updated with mixed-frequency data:
Industrial Production (monthly)
Personal Income Less Transfer Payments (monthly)
Manufacturing & Trade Sales (monthly)
Initial Jobless Claims (weekly)
As new data for each of these series arrives, the ADS Index is updated, with the latest numbers as of June 4. The ADS Index and comparable benchmarks have shown some evidence of providing “timely statistical evidence of turning points,” according to one economic briefing. The question is whether that will remain true in the months ahead. Or should we put more weight in the relative optimism of the Livingston Survey?
Perhaps it’ll be easier to answer confidently, one way or another, after digesting next week’s busy round of scheduled data revisions: retail sales (Tues), consumer price inflation and industrial production (Wed), jobless claims and housing starts (Thursday), and the Conference Board’s Leading Indicators Index and the University of Michigan’s Consumer Sentiment Index (Fri).
Back here in real time, the debate about what comes next rolls on. That’s good news to a degree if you consider that if the near-term outlook for the economy isn’t an open-and-shut case, there’s still hope. Of course, there’s a flip side to that reasoning. But given the recent numbers, you have to grab whatever points of light are offered.