Economic outlook survey: fourth quarter 1989.

• Author: Zarnowitz, Victor

Economic Outlook Survey

Fourth Quarter 1989

According to the December survey of 17 professional forecasters taken by the NBER and the American Statistical Association, real GNP grew 2.9 percent in 1989 and will grow 1.9 percent in 1990. Consumer price inflation will have averaged 4.8 percent in 1988-9 and will average 4.2 percent in 1989-90. Interest rates will decline moderately.

A Slowdown for 1989:4-1990:2

The median forecasts of annual growth in the economy's output for 1989:4, 1990:1, and 1990:2 are 1.0 percent, 1.8 percent, and 1.4 percent, respectively. Growth rates of 2.4 percent and 2.5 percent are expected for 1990:3 and 1990:4. Of the 80 quarterly predictions, seven (or 9 percent) are negative, including two declines of a single quarter each, one of two quarters, and one of three quarters. All of these declines are predicted through mid-1990. Only two respondents predict a full-scale recession with a duration of at least two quarters. The prevailing forecast is for a definite but short slowdown, followed by a restoration of moderate growth in the second half of the year. The gain in real GNP projected between 1989:4 and 1990:4 is 2.0 percent.

Since the last survey in September, participants have lowered their estimates of growth for 1989-90, but they still believe that a recession is unlikely. The following table shows the percentage distribution of forecasts of growth in real GNP. A comparison of percentage distributions of means calculated from the probabilistic forecasts reported by the survey participants show clearly that expectations have shifted to lower growth. The chances of a year-to-year recession, however, remain low.

Percentage Change

in Real GNP, September December 1989-90 1989 1989 4 percent or more 6 7 2-3.9 percent 45 33 0.1-1.9 percent 39 50 Negative 10 10 Moderate Increase in the Probabilities of a Short Recession

The estimated probabilities of a recession increased for 1989:4-1990:1 but decreased for 1990:2-1990:3 since the last survey. These distributions are skewed positively; the individual assessments are highly dispersed. Still, compared with past estimates, means of 25-30 percent are fairly high.

Mean Probability

of a Decline in September December Real GNP, 1989-90 1989 1989 1989:4 17 25 1990:1 23 30 1990:2 29 26 1990:3 29 20 1990:4 n.a. 16 Unemployment Likely to Rise Slowly

The civilian unemployment rate is forecast to average 5.4 percent in 1989:4 and 5.6 percent in both 1990:4 and 1990 as a whole...