The Gross Domestic Product

The Gross Domestic Product for the United States, which is otherwise known as

 

GDP has been forecasted by dozens of researchers and organizations for the next two to

 

ten years. The forecasts from the Congressional Budget Office and Federal Reserve of

 

Philadelphia were selected for a comparison in the GDP predictions.

 

The Federal Reserve of Philadelphia forecasters reported in June of 2005 that, “…[they]

 

project that the economy’s output will rise at an annual rate of 3.3 percent in the first half

 

of 2005. They see the growth rate of economic output (real GDP) increasing to 3.6

 

percent in the second half of 2005, and they predict that it will then slow to an annual rate

 

of 3.1 percent in the first half of 2006.”

 

The Congressional Budget Office (CBO) stated in its February 2005 report that, “…GDP

 

will grow at an annual rate of about 3.8 percent in the next two years to close most of that

 

gap, before slowing to a pace of 2.9 percent for the 2007-2015 period.” As the GDP is

 

resting at 3.8 in the third quarter of 2005, it is much easier to agree with the CBO’s

 

forecast as it is thus far correct. The Federal Reserve of Philadelphia predicted a much

 

smaller GDP for the third quarter at 3.6 percent. Additionally, The Federal Reserve did

 

not forecast the GDP past fourth quarter of 2006.  As The Federal Reserve’s forecast for

 

the second half of 2005 has thus far been inaccurate, it is much easier to align one’s own

 

hopes and beliefs with that of the more accurate CBO.

 

The Congressional Budget Office predicts national unemployment levels to

stabilize at 5.2 percent for 2005 through 2010. The predictable national unemployment rates are below the 6.0 percent unemployment rate in 2003 and are consistent with the current July 2005 rate of 5.2 percent. This has much to do with the fact that the United States lost many jobs and industrial land because of the hurricanes in the south this year.

                                                                        Economic Indicator Forecast     3

 

It is predicted that it might take three to four years to recover. The unemployment rate for the City of Chicago was 7.7 percent for July 2005, which was below July 2003 rates of 8.6 percent. The Illinois Department of Employment Security reported between 2001 and 2003, Illinois employment decreased more than the U.S. average by about one percentage point. Between 1999 and August 2004, Illinois lost 173,800 manufacturing jobs — a 19.8 percent decrease in this sector. Gains in employment for construction, education, and health service sectors, however, helped to improve employment conditions for Illinois and Chicago. According to the Federal Reserve Bank of Chicago, the nation’s economic growth in 2005 and 2006 will be more moderate than in 2004, and unemployment will hold steady, according to the median forecast of participants at the Federal Reserve Bank of Chicago’s Automotive Outlook Symposium. The unemployment rate will fall to 5.2% in 2005 and hold steady in 2006, after averaging 5.5% in the fourth quarter of 2004. It seems that most are predicting the same forecast for unemployment in 2006. It might be prudent to think that the prediction most have forecast is correct. It might take a couple of years to recover from all the damages that happen this year just like the country did in 2001 after 9/11. This might create a consistent unemployment rate for the next couple of years.

 

 

 

 

 

 

 

 

 

 

 

 

Economic Indicator Forecast   4

 

U.S. Unemployment Rate Forecast

(Congressional Budget Office 2005)

U.S. Civilian Unemployment Rate Forecast

Percent Unemployed, Seasonally Adjusted.

 

Oct
2005

Nov
2005

Dec
2005

Jan
2006

Feb
2006

Mar
2006

Forecast Value

5.10

5.22

5.01

5.04

5.05

5.15

Standard Deviation

0.1

0.1

0.1

0.2

0.2

0.2

 

 

 

 

 

 

 

Correlation Coefficient

0.9925

0.9912

0.9899

0.9886

0.9873

0.9860

 

 

 

 

 

 

 

 

U.S. Civilian Unemployment Rate

(Congressional Budget Office 2005)

Past Trend, Present Value & Future Projection

Percent Unemployed, Seasonally Adjusted.

 

 

 

Hurricanes Katrina and Rita damaged, set adrift, or sunk 192 oil and natural gas

 

drilling rigs and producing platforms, the most significant blow to the U.S. petroleum and

 

natural gas industries in recent memory.

Economic Indicator Forecast     5

At the beginning of November almost 53 percent of normal daily Federal Gulf of

Mexico oil production and 47 percent of Federal Gulf of Mexico natural gas production

remains shut in. Moreover, in Louisiana 1.0 billion cubic feet (bcf) per day of onshore

natural gas production remains offline and 0.8 million barrels per day (bbl/d) of crude oil

refining capacity remains shut down. Some wells were temporarily shut in as a precaution

to Hurricane Wilma. While no damage was reported from that storm, hurricane recovery

remains a key factor in this Outlook. Indeed, recent information on damaged and

destroyed platforms and shut-in production suggests that the recovery path will be slower

than predicted in the October Outlook. This short-term forecast projects that total energy

demand is likely to respond to higher prices and hurricane-related destruction by showing

relatively flat growth between 2004 and 2005, compared with 1.5-percent growth

between 2003 and 2004. However, energy demand is expected to recover in 2006 at a

rate of about 2 percent. Prices for crude oil, petroleum products, and natural gas are

projected to remain high during the remainder of 2005 and through 2006 because of tight

international supplies and hurricane-induced supply losses. The price of West Texas

Intermediate (WTI) crude oil is expected to average $57 per barrel in 2005 and $64-$65

per barrel in 2006 (Figure 1. West Texas Intermediate Crude Oil Price). Retail regular

gasoline prices are expected to average $2.29 per gallon in 2005 and $2.43 in 2006

(Figure 2. Gasoline and Crude Oil Prices). Henry Hub natural gas prices are expected to

average $9.15 per thousand cubic feet (mcf) in 2005 and $9.00 per mcf in 2006

(Figure 3. U.S. Natural Gas Spot Prices).

 

 

 

 

Economic Indicator Forecast     6

 

 

Price Summary
 

Year

Percent Change

2003

2004

2005

2006

03-04

04-05

05-06

WTI Crudea ($/barrel)

31.12

41.44

57.27

64.40

33.2

38.2

12.5

Gasolineb ($/gal)

1.56

1.85

2.29

2.43

18.8

23.9

5.9

Dieselc ($/gal)

1.50

1.81

2.45

2.56

20.3

35.2

4.8

Heating Oild ($/gal)

1.36

1.54

2.06

2.30

13.5

34.0

11.4

Natural Gasd ($/mcf)

9.51

10.74

13.05

14.48

12.9

21.6

10.9

a West Texas Intermediate.   b Average regular pump price.
c On-highway retail.              d Residential average.

 

 

 

                                                                                          Economic Indicator Forecast     7

 

 

 

References:

 

www.forecast.com-eia.coe.gov/emeu/steo/pub/contents.html

www.frbchicago.org    www.forecast.com

 

Congressional Budget Office. (2005). “The Budget and Economic Outlook: Fiscal Years 2006 to 2015.” February 1, 2005. Washington, D.C.

The Federal Reserve of Philadelphia. (2005.) “Forecasters predict economic growth in 2006.” June 8, 2005. Philadelphia, Pennsylvania. Retrieved on November 8, 2005 from http://www.phil.frb.org/files/liv/livjun05.pdf

 

 

 

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