Unexpectedly Intriguing!
October 3, 2011

The strongest force affecting future GDP is inertia.

At least, it is if you go by our "modified limo" approach to forecasting future GDP!

Here, we took a forecasting approach originally developed by Steve Conover, which he called the "climbing limo" method, and adapted it to produce a more accurate projection of GDP in the near term (the next quarter) than what the climbing limo method delivers (although to be fair, the climbing limo method was developed to look three quarters into the future - there's a lot that can happen in the meantime to sway the economy off the course that method would forecast!)

Now that the GDP data for the second quarter of 2011 has been finalized, we can now project where real GDP will be in 2011-Q3, using the tool we developed to forecast the next quarter's GDP!

Input Data Values
Three Quarters Ago (Billions of "Chained" U.S. Dollars)
Two Quarters Ago (Billions of "Chained" U.S. Dollars)
Most Recent Quarter (Billions of "Chained" U.S. Dollars)

Calculated Results Values
"Modified Limo" Estimate (Billions of "Chained" U.S. Dollars)

The graph below visualizes the forecast presented by our tool:

In reality, the target value of \$13,299.8 billion in constant 2005 U.S. dollars that we've projected for the inflation-adjusted value of GDP in the third quarter of 2011 represents the midpoint of the forecast range into which we expect GDP to be in 2011-Q3.

Assuming that the deviation between our modified limo forecast value and actual GDP can be described by a normal distribution, we estimate a 68.2% probability of the BEA recording real GDP for 2011-Q3 somewhere between \$13,160.1 billion and \$13,439.5 billion, and a 95% probability of it falling between \$13,020.4 billion and \$13,579.2 billion. There is a 99.7% probability of 2011-Q3's GDP figure being recorded somewhere between \$12,880.8 billion and \$13,718.8 billion.

The midpoint value of our forecast range for the third quarter of 2011 would represent a 0.8% annualized rate of growth for the U.S. economy. We would describe that level of growth as near-recessionary, if not recessionary. Or as we might better describe it, given the data we have today, the odds are that U.S. will continue to experience what might best be described as a microrecession. But then, such is the nature of inertia.

We'll finally note that there is a 50% chance the U.S. economy is currently performing better than this forecast figure would anticipate and a 50% chance it's currently performing worse. We'll find out which is the case on 27 October 2011.

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