just around the corner

Forecasters keep thinking there’s a recovery just around the corner. They’re always wrong. by Neil Irwin

(via Thoma)

Consider, for example, the Fed’s projections in November of 2009. Sure, growth would be slow in 2010, they held. But 2011 growth, they expected, would be 3.4 to 4.5 percent, and 2012 would 3.5 to 4.8 percent growth. The actual levels of growth were 2 percent in 2011 and 1.5 percent in 2012. 

What’s amazing is that the Fed’s newest projections, released in December of 2012, look like they could have been copy and pasted from 2009, just with the years changed: They forecast sluggish growth in 2013, 2.3 to 3 percent, followed by a pickup to 3 to 3.5 percent in 2014 and 3 to 3.7 percent in 2015. 

This isn’t meant to pick on the Fed; the same is true of other forecasters both in the government and the private sector. The Economic Policy Institute captured the CBO’s proclivity for projecting growth just around the corner in the chart below, from a briefing paper released last week. Essentially, this shows how as the years have passed, the CBO just keeps pushing back the timing of a genuine recovery—the time when the U.S. economy’s output has returned to the agency’s estimate of its potential—further and further. In early 2009, the CBO thought we would be back to full employment right about now; in their outlook released earlier this month, that was more like 2016 or 2017. 

Source: Economic Policy Institute 

The overly optimistic forecasts have rested on one crucial assumption: That if we can just get through this rough patch, the natural forces of economic regeneration will assert themselves, and growth will snap back into place....

However, Goldman Sachs's Hatzius is predicting recovery in 2013H2 and 2014. He called the housing bubble and has a model based on sectoral balances: private sector and government leveraging and deleveraging.