2:50 pm ET Dec 31, 2014


What the Economic Forecasters Got Right—and Wrong—in 2014

By Sudeep Reddy
Many economic forecasters can look back on 2014 as one of their least embarrassing performances of recent years. But they’ll still want to forget many of their projections for the latest year.

It’s not a pretty picture: Most of them in January expected far higher oil prices, firmer inflation, a worse jobless rate and higher interest rates than the year actually delivered. We won’t know until next month how they fared in forecasting economic growth.

We looked back at the projections made in January’s Wall Street Journal survey of economists against what we know today. You won’t judge the forecasters too harshly if you know how they work: Economic projections are a difficult guessing game based on complex computer models, instinct and lots of luck. Here’s to better luck next year.

(See full results from the WSJ Economic Forecasting Survey throughout 2014, including individual economists’ projections.)

GDP Growth

Full-year 2014 consensus projection: 2.8%
Actual: due in early 2015

When the final numbers are in, economic growth probably won’t be as strong as most economists expected. But the economy still appears to have picked up from 2013, with a first-quarter weather-driven contraction offsetting stronger output later in the year.

Unemployment Rate

Consensus projection for December 2014: 6.3%
Actual (November 2014): 5.8%

Almost every economist saw the jobless rate at or above 6% by the end of the year. The consensus for the jobless rate at the end of next year, 2015—5.8%—is right where we were in the latest report. The jobless rate should stay low in 2015 unless the labor market deteriorates or potential workers return to the labor force.

Payroll Growth

Average monthly change in payrolls over next 12 months: 200,000
Actual (11-month average through November 2014): 241,000

Professional economic forecasters tend to go wrong by being too optimistic. Last year, it was the opposite. 

Inflation (consumer price index, annual change)

Projection for December 2014: 1.9%
Actual (November 2014): 1.3%

Credit the sharp drop in energy prices for the miss in forecasting overall inflation. Excluding food and energy, annual inflation clocked in at 1.7% in November.

Interest Rates (10-Year U.S. Treasury yield)

Projection for closing yield in December 2014: 3.52%
Final close: 2.17%

This one is a real doozy for one of the world’s most important interest rates. Every economist in the survey in January was far off the mark in expectations for interest rates in 2014.

Crude Oil

Consensus for the end of December 2014: $94.65/barrel
Final close: $53.27/barrel

The year’s plunge in crude oil prices, from a peak of $107.26 in June, was easily the biggest economic surprise of 2014. Most consumers can celebrate that economists were so wrong.

(This post has been updated to reflect Wednesday’s closing values for crude oil and the 10-year Treasury yield.)

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