How have economic forecasts evolved in 2023?
At the start of the year, the consensus forecast was for growth to be negative to flat in Q2 and Q3. The first actual reading for second quarter GDP was released last week, coming in at a surprisingly firm 2.4% — well above those expectations. As shown above, quarterly GDP forecasts have been revised significantly throughout the year. Upside surprises to economic activity have prompted forecasters to lift near-term growth prospects. And while recession risk hasn’t completely dissipated, the strength of the labor market and consumer spending have pushed the anticipated slowdown further out on the horizon.
What are the takeaways for investors? First, it’s a reminder that the economy is not the market. In this case, the market rallied even as the economic data looked soft, at least partially in anticipation of falling inflation and better-than-expected growth. Second, it illustrates the risk of relying heavily on economic forecasts to guide strategic investment decisions. Forecasting is an imperfect science, and expectations can change rapidly and materially. That’s clearly been the case this year, in which stocks have provided strong returns, climbing the proverbial wall of worry even while staring down the so-called “most anticipated recession ever” that has yet to arrive. That doesn’t mean that the economy is out of the woods by any means. Still, investors would be wise to not make long-term investment decisions based on the day-to-day flow of economic data, which often paints an inconsistent picture of what’s happening, or forecasts that can be very inaccurate, particularly at turning points in the cycle.
Bottom line? Investors should avoid reacting to economic data to make critical investment decisions, but instead remain disciplined and anchored to a long-term investing plan.
Past performance does not guarantee future results. All investments include risk and have the potential for loss as well as gain.
Data sources for peer group comparisons, returns, and standard statistical data are provided by the sources referenced and are based on data obtained from recognized statistical services or other sources believed to be reliable. However, some or all of the information has not been verified prior to the analysis, and we do not make any representations as to its accuracy or completeness. Any analysis nonfactual in nature constitutes only current opinions, which are subject to change. Benchmarks or indices are included for information purposes only to reflect the current market environment; no index is a directly tradable investment. There may be instances when consultant opinions regarding any fundamental or quantitative analysis may not agree.
Plante Moran Financial Advisors (PMFA) publishes this update to convey general information about market conditions and not for the purpose of providing investment advice. Investment in any of the companies or sectors mentioned herein may not be appropriate for you. You should consult a representative from PMFA for investment advice regarding your own situation.