Key Takeaways
- A St. Louis Federal Reserve report released this week shows that the economy often veers from the path laid out by forecasters at the beginning of the year.
- In the past, forecasts for gross domestic product can be off by as much as a full percentage point, while unemployment projections are often closer.
- This time last year, economists expected GDP to be half of 2024’s likely outcome.
With the new year comes a crop of new economic projections, as analysts examined data and trends in an effort to lay out an economic roadmap for the upcoming year.
Economists expect the economy to grow, unemployment to remain at bay, and interest rates to stabilize. However, according to a new report by the St. Louis Federal Reserve, the specific rates at which these economic factors change will likely deviate from projections.
“Measuring the current state of the economy is difficult because data are backward-looking and often revised. As a result, economic forecasts are frequently wrong,” wrote economists Charles Gascon and Joseph Martorana.
For example, economists’ consensus forecast a 1.3% growth in gross domestic product (GDP) over 2024. While the fourth quarter’s results haven’t been released yet, Gascon and Martorana said the reality will likely be more than double that.
How Have Forecasters Fared in the Past?
The study examined how accurate the forecasts were likely to be over the three-decade period starting in 1993.
Over that time, forecasters’ estimates for GDP were off by as much as a full percentage point. For unemployment, researchers were on average, off by a half-percentage point and missed the mark on inflation by as much as 0.7 percentage points.
Analysts were also more likely to deliver biased results when forecasting the bond market. Economists consistently underestimated Treasury yield levels by nearly half a percentage point.
