Q2 US Real GDP Growth Forecast: Chicago Fed at 2.7%; Consensus at 3.2%

By: Paul_L_Kasriel

Of course, the Chicago Fed does not release to the public its GDP forecasts. But it does publish an index called the National Activity Index (NAI), which is, in effect, a darned good coincident indicator of real GDP growth. The NAI is a weighted average of 85 existing monthly indicators of economic activity drawn from five broad categories:

1) output and income 2) employment, unemployment and hours 3) personal consumption, housing starts and sales 4) manufacturing and trade sales and 5) inventories and orders. Using an ordinary least-squares regression with the NAI as the independent variable, one can obtain a forecast of quarter-to-quarter annualized real GDP growth. The chart below shows actual real GDP growth
versus real GDP growth forecast by the NAI. The correlation between the two series is 0.70 – not bad for Federal Reserve work. The NAI forecast for second-quarter real GDP growth, the Commerce Department’s first guesstimate of which will be released this Friday, is 2.7%. The consensus forecast is 3.2%. The low forecast in the consensus survey is 2.7%. Any ideas whose that might be? Check out the U.S. Economic & Interest Rate Outlook July 10, 2007.

* Forecast is based on ordinary least-squares regression with a constant and Chicago Fed National Activity Index as independent variable.

By Paul L. Kasriel
The Northern Trust Company
Economic Research Department - Daily Global Commentary

Copyright © 2007 Paul Kasriel
Paul joined the economic research unit of The Northern Trust Company in 1986 as Vice President and Economist, being named Senior Vice President and Director of Economic Research in 2000. His economic and interest rate forecasts are used both internally and by clients. The accuracy of the Economic Research Department's forecasts has consistently been highly-ranked in the Blue Chip survey of about 50 forecasters over the years. To that point, Paul received the prestigious 2006 Lawrence R. Klein Award for having the most accurate economic forecast among the Blue Chip survey participants for the years 2002 through 2005.

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.

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