Larry DeBoerPurdue University

August 2011

AUGUST FORECAST

GDP Unemp- Int. Rate Int. RateGrowth Inflation loyment 3 mo. T 10 yr T

Aug '11 for 2012 2.5% 1.5% 9.0% 0.2% 3.0%

Aug '10 for 2011 2.8% 0.9% 9.5% 0.3% 2.7%Actual 2010 1.6% 3.4% 9.1% 0.04% 3.0%Error 1.2% -2.5% 0.4% 0.2% -0.3%Forecast record since August '91 (20 August forecasts)Mean Error -0.1% 0.0% 0.0% 0.5% 0.4%Mean Absolute Error 1.3% 1.0% 0.6% 0.6% 0.4%

Mean error shows the average of the differences between forecasts and actuals.A big positive error and an equally big negative error would sum to a zero average. Over 20 forecasts, on average I underpredicted growth by 0.2 points.Mean Absolute Error shows the average of the absolute differences between forecasts and actuals. Over 20 forecasts, on average I missed GDP growth by plus or minus 1.2 points.

Some Macroeconomic Forecasts for 2012

GDP Inflation Unemp- Int. Rate Int. RateForecast & Date Growth (CPI) loyment 3-mo. T 10-yr. T

Congressional 3.1% 1.0% 8.4% 1.1% 3.8%Budget OfficeJanuary 2011http://www.cbo.gov

RSQE 3.1% 1.9% 8.7% 0.2% 3.3%Univ. of Michigan6/16/2011http://www.umich.edu/~rsqe/pages/Forecasts.html

Survey of Professional 2.6% 2.0% 8.6% 0.4% 3.5%ForecastersPhiladelphia Federal Reserve8/12/2011http://www.phil.frb.org/econ/spf/

DeBoer, August 2011 2.5% 1.5% 9.0% 0.2% 3.0%Current, August 2011 1.6% 3.4% 9.1% 0.04% 3.0%

KEY:3-mo. T: Three month Treasury note10-yr. T: Ten year Treasury bondCPI: Consumer Price IndexRSQE: Research Seminar in Quantitative Economics

Recent Changes in Major GDP Components

Prior Past PastMajor GDP Components 3 years year QuarterI: Business Equipment -2.9% 9.1% 5.7%C: Durable Goods -1.6% 8.0% -4.4%X: Exports 2.6% 7.9% 6.0%M: Imports -2.0% 4.7% 1.3%C: Non-durable Goods -0.1% 2.2% 0.1%I: Business Structures -10.7% 1.7% 8.2%GDP: Gross Domestic Product -0.3% 1.6% 1.3%C: Services 0.0% 1.1% 0.8%G: Federal Defense 5.8% -1.7% 7.3%G: Federal Non-defense 7.4% -2.3% -7.4%G: State and Local -0.8% -2.5% -3.4%I: Residential Structures -17.1% -6.9% 3.8%

63.7July ‘11

Recent Changes in Major GDP Components

Prior Past PastMajor GDP Components 3 years year QuarterI: Business Equipment -2.9% 9.1% 5.7%C: Durable Goods -1.6% 8.0% -4.4%X: Exports 2.6% 7.9% 6.0%M: Imports -2.0% 4.7% 1.3%C: Non-durable Goods -0.1% 2.2% 0.1%I: Business Structures -10.7% 1.7% 8.2%GDP: Gross Domestic Product -0.3% 1.6% 1.3%C: Services 0.0% 1.1% 0.8%G: Federal Defense 5.8% -1.7% 7.3%G: Federal Non-defense 7.4% -2.3% -7.4%G: State and Local -0.8% -2.5% -3.4%I: Residential Structures -17.1% -6.9% 3.8%

Recent Changes in Major GDP Components

Prior Past PastMajor GDP Components 3 years year QuarterI: Business Equipment -2.9% 9.1% 5.7%C: Durable Goods -1.6% 8.0% -4.4%X: Exports 2.6% 7.9% 6.0%M: Imports -2.0% 4.7% 1.3%C: Non-durable Goods -0.1% 2.2% 0.1%I: Business Structures -10.7% 1.7% 8.2%GDP: Gross Domestic Product -0.3% 1.6% 1.3%C: Services 0.0% 1.1% 0.8%G: Federal Defense 5.8% -1.7% 7.3%G: Federal Non-defense 7.4% -2.3% -7.4%G: State and Local -0.8% -2.5% -3.4%I: Residential Structures -17.1% -6.9% 3.8%

Federal Government Debt as Percent of GDP

Deficit, $1,294

38%

Recent Changes in Major GDP Components

Prior Past PastMajor GDP Components 3 years year QuarterI: Business Equipment -2.9% 9.1% 5.7%C: Durable Goods -1.6% 8.0% -4.4%X: Exports 2.6% 7.9% 6.0%M: Imports -2.0% 4.7% 1.3%C: Non-durable Goods -0.1% 2.2% 0.1%I: Business Structures -10.7% 1.7% 8.2%GDP: Gross Domestic Product -0.3% 1.6% 1.3%C: Services 0.0% 1.1% 0.8%G: Federal Defense 5.8% -1.7% 7.3%G: Federal Non-defense 7.4% -2.3% -7.4%G: State and Local -0.8% -2.5% -3.4%I: Residential Structures -17.1% -6.9% 3.8%

Imports

Trade Balance

Exports

China Yuan

Euro

AUGUST FORECAST

GDP Unemp- Int. Rate Int. RateGrowth Inflation loyment 3 mo. T 10 yr T

Aug '11 for 2012 2.5% 1.5% 9.0% 0.2% 3.0%

Aug '10 for 2011 2.8% 0.9% 9.5% 0.3% 2.7%Actual 2010 1.6% 3.4% 9.1% 0.04% 3.0%Error 1.2% -2.5% 0.4% 0.2% -0.3%Forecast record since August '91 (20 August forecasts)Mean Error -0.1% 0.0% 0.0% 0.5% 0.4%Mean Absolute Error 1.3% 1.0% 0.6% 0.6% 0.4%

Mean error shows the average of the differences between forecasts and actuals.A big positive error and an equally big negative error would sum to a zero average. Over 20 forecasts, on average I underpredicted growth by 0.2 points.Mean Absolute Error shows the average of the absolute differences between forecasts and actuals. Over 20 forecasts, on average I missed GDP growth by plus or minus 1.2 points.

Total

Private

Core (less food and energy)

All Items

Real

Nominal

AUGUST FORECAST

GDP Unemp- Int. Rate Int. RateGrowth Inflation loyment 3 mo. T 10 yr T

Aug '11 for 2012 2.5% 1.5% 9.0% 0.2% 3.0%

Aug '10 for 2011 2.8% 0.9% 9.5% 0.3% 2.7%Actual 2010 1.6% 3.4% 9.1% 0.04% 3.0%Error 1.2% -2.5% 0.4% 0.2% -0.3%Forecast record since August '91 (20 August forecasts)Mean Error -0.1% 0.0% 0.0% 0.5% 0.4%Mean Absolute Error 1.3% 1.0% 0.6% 0.6% 0.4%

Mean error shows the average of the differences between forecasts and actuals.A big positive error and an equally big negative error would sum to a zero average. Over 20 forecasts, on average I underpredicted growth by 0.2 points.Mean Absolute Error shows the average of the absolute differences between forecasts and actuals. Over 20 forecasts, on average I missed GDP growth by plus or minus 1.2 points.

Ben Bernanke, Fed Chair

“To promote the ongoing economic recovery and to help ensure that inflation, over time, is at levels

consistent with its mandate, the Committee decided today to keep the target range for the federal funds rate

at 0 to 1/4 percent.  The Committee currently anticipates that economic conditions--including low rates of

resource utilization and a subdued outlook for inflation over the medium

run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.”

FOMC, August 9, 2011 

Voting against the action were: Richard W. Fisher, Narayana Kocherlakota, and Charles I. Plosser . . . .

Monetary Base

Money Supply

BAA

AAA

AUGUST FORECAST

GDP Unemp- Int. Rate Int. RateGrowth Inflation loyment 3 mo. T 10 yr T

Aug '11 for 2012 2.5% 1.5% 9.0% 0.2% 3.0%

Aug '10 for 2011 2.8% 0.9% 9.5% 0.3% 2.7%Actual 2010 1.6% 3.4% 9.1% 0.04% 3.0%Error 1.2% -2.5% 0.4% 0.2% -0.3%Forecast record since August '91 (19 August forecasts)Mean Error -0.1% 0.0% 0.0% 0.5% 0.4%Mean Absolute Error 1.3% 1.0% 0.6% 0.6% 0.4%

Mean error shows the average of the differences between forecasts and actuals.A big positive error and an equally big negative error would sum to a zero average. Over 20 forecasts, on average I underpredicted growth by 0.2 points.Mean Absolute Error shows the average of the absolute differences between forecasts and actuals. Over 20 forecasts, on average I missed GDP growth by plus or minus 1.2 points.