Macroeconomics One Set of Macroeconomic Projections Comes

Macroeconomics

One set of macroeconomic projections comes from the Congressional Budget Office (CBO). The CBO forecasts two years out specifically and uses projected annual averages for the subsequent four and five-year periods. The CBO is projecting real GDP growth of 3.1% in 2011, 2.8% in 2012, an average of 3.4% in 2013-16 and an average of 2.4% from 2017-21. The CBO's projection for the ten-year Treasury note is 3.4% in 2011, 3.8% in 2012, 4.7% in 2013-16 and 5.4% in 2017-21.

Another set of macroeconomic projections comes from the bi-annual Livingston survey, which is conducted by the Federal Reserve Bank of Philadelphia with contributions from a number of economists. According to the December 2010 Livingston Survey, the projected GDP growth for the six months between 2010 Q4 and 2011 Q2 is 2.5% and for the six months between 2011 Q2 and 2011 Q4 is 2.9%. There are also projections for the ten-year Treasury bond, which are 3.26% for December 2011 and 4% for December 2012.

These reports use different methodologies. The Livingston Survey is a compilation of views of 42 economists, largely ones who work in the field with a couple of academics included as well. Their views are going to be characterized by their different professional outlooks and methodologies. The Livingston Survey is therefore going to be an aggregate of a number of different methodologies. The CBO is an internal projection that is based on macroeconomic theory and uses information from a number of different offices including the BEA, Dept. Of Commerce, Dept. Of Labor, BLS and Federal Reserve. The figures are intended to be used as guidance for federal budget making, but are also made available to the public.

In these two sets of figures, the Livingston Survey is more pessimistic with respect to economic growth, having downgraded its GDP growth expectations in the short-term to levels significantly below what the CBO is projecting. The Livingston respondents also believe that lower economic growth is going to be coupled with lower interest rates, presumably as a result of continued expansionary monetary policy at the Fed. In 2012, the CBO projects a lower 10-year Treasury rate, so the inflation expectations are higher at the Livingston Survey than they are at the CBO.

These findings have interesting implications for the Bank of America. The Bank will have an in-house economic team to make economic projections, and these can be compared with other sets of projections. The variance in the different projections, however, coupled with the lack of detailed explanation of those figures, makes them only useful as loose guidelines. A major bank needs more precise information, so is not likely to rely on these particular sets of projections.