Twenty Years of GDP, and Other Random Graphs

As I was prepping slides for my macro policy course, I generated this graph:

Figure 1: GDP as reported (black), Administration official forecast as of August 2020 (red squares), CBO projection as of July 2020 (blue) and Survey of Professional Forecasters mean August 2020 forecast (pink), CBO estimate of potential GDP (gray), all in billions of Ch.2012$ SAAR, all on a log scale. NBER defined recession dates shaded gray; assumes current recession ends 2020Q2. Source: BEA 2020Q2 advance, White House, CBO Economic Outlook (July), Survey of Professional Forecasters (August), NBER, and author’s calculations.

Notice the sharp drop in GDP in Q2; this drop is certainy steeper and deeper than the Great Recession’s dive. The rebound is forecasted to be steep as well, by both the Congressional Budget Office and the Survey of Professional Forecasters; however, the recovery is also forecasted to slow to a pace that implies no recovery to pre-recession levels until sometime in 2022.

The Administration’s current forecast (which is the same as the FY2021 budget forecast issued in February, since the Administration declined to update their forecast) is clearly nonsensical. It was implausible even before the Covid-19 recession. But retaining the FY2021 forecast is merely the latest case of Trump engaging in delusional thinking (or at least it’s delusional for anybody to believe what the Administration says).

It’s also interesting to compare the economy’s situation to when I last taught the course (Spring 2019). The economy was plugging along just fine (albeit after blowing a whole in the fiscal accounts with the Tax Cuts and Jobs Act).

Figure 2: Nonfarm payroll employment (blue), industrial production (red), personal income excluding transfers in Ch.2012$ (green), manufacturing and trade sales in Ch.2012$ (black), and monthly GDP in Ch.2012$ (teal), all log normalized to 2009M06=0. Source: BLS, Federal Reserve, BEA, via FRED, Macroeconomic Advisers, NBER, and author’s calculations.

That being said, the yield curve was tending toward inversion.

Figure 3: 10 year-3 month Treasury yield spread (blue), 10 year-2 year spread (red), both in %. NBER defined recession dates shaded gray. Source: Federal Reserve via FRED, NBER and author’s calculations.