Academic journal article The Journal of Business Forecasting Methods & Systems

Consensus Forecasts of Financial Institutions

Academic journal article The Journal of Business Forecasting Methods & Systems

Consensus Forecasts of Financial Institutions

Article excerpt

HIGHLIGHTS The Fall survey of financial forecasters foresees slower activity in 1999. Stock market ups and downs plus the Asian crisis is expected to have an impact on consumer confidence and consumer spending. Small declines in short-term rates will continue. Growth in the money supply will be modest in the future. Inflation continues on a roll quite small inflation projections. Business investments represent a bright spot. Auto sales and housing starts will exhibit little growth.

ECONOMIC ACTIVITY CONTINUES UP TREND

The U.S. economy will continue to move forward through 1999 - albeit at a somewhat slower pace. Independent economic advisor, Gary L Ciminero, feels that "the economic outlook continues to foresee dramatically slower growth ahead, as our foreign trade accounts persistently plunge and falling confidence and stock prices brake consumption spending by the fourth quarter (1998). This could cut GDP growth to less than 1% by the first quarter of next year. This low ebb would represent an economic `pause,' but not a recession, since we assume growth will resume at a 2% trend by the second half." Indeed, the latest consensus forecast is for real GDP to grow by an annual rate of 2.1 percent over the four quarters of 1999. There has been a slight revision downward in the 1999 projections when compared to previous 1999 forecasts - no doubt, showing the influences of the Asian Pacific economies.

Falling stock prices are having an impact on consumer confidence -- retail sales growth has been slow over the last few months. For 1999, the consensus forecast is for current dollar Personal Consumption Expenditures to increase by 4.2 percent, on an annual basis. There is also an expected slowdown in the growth of Personal Disposable Income. The projection is for disposable income to grow by 3.5 percent. The latest projections for consumption expenditures and disposable income show small increases when compared with the previous survey.

SHORT-TERM RATES DOWN

With the recent drop in the Federal Funds rate, the survey respondents, on average, are suggesting a continued small decline in the funds rate. By 1999-4, the funds rate should be 5.05 percent. As for longer-term rates, the outlook is somewhat different. The forecast for the Aaa Corporate Bond rate is to remain relatively flat through all of 1999 - hovering around 6.36 percent. The survey respondents are suggesting that money supply growth will be "well-behaved" through 1999. …

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