Last week I wrote about the GDP predictions from Kalshi and the GDPNow Model. They were both showing 2.4% for Q2 of 2025 last week. They both changed slightly by yesterday, up to 2.8% and 2.9%. The final result (technically, the “advanced” result, but the final one for purposes of this comparison) was 2.97%. The Atlanta Fed GDPNow model continues to be a top performer, and you can’t do much better than averaging these two estimates. And you can pretty consistently do better than the median result from the WSJ/Dow Jones survey of economists.
Back in April I wrote about 4 different estimates of GDP growth and how well they have performed since 2023. With the 2nd quarter of 2025 GDP data coming out next week, what do the best performing predictors currently say?
In that last post, I showed that the Atlanta Fed GDPNow model and the Kalshi betting market were generally the best performers. And furthermore, averaging these two improves the predictive power a little more. As of today, the GDPNow model is predicting 2.4% growth and Kalshi is… also predicting 2.4%!
There will be a few more updates to GDPNow over the next week, and of course Kalshi is constantly updating as more people bet. But as of right now, 2.4% growth seems like a reasonable prediction. That may surprise some people, especially given all of the pessimism surrounding tariffs and policy uncertainty generally. But despite all of this, the US economy appears to be just continuing to chug along.
Last month I wrote about the projected decline in GDP from the Atlanta Fed’s GDPNow model. Since then, they have released an alternative version of the model, which includes a “gold adjustment” to account for non-monetary gold inflows, which may be impacting the model to overstate the negative impact of imports (and it looks like this may be a permanent change to the model).
With those changes, and some more recent data, the GDPNow model is still pointing to a negative reading for Q1 of 2025, though only very slightly now: -0.1%.
It’s also worth noting that the New York Fed has a similar model, but one with very different estimates right now: about 2.6% for Q1.
We’ll still have to wait until April 30th to get the preliminary estimates from BEA.
Will a recession happen? It’s famously hard/impossible to predict. Personally, I have a relatively monetarist take. I consider the goals of the Federal reserve, what tools they have, and how they make their decisions. I also think about the very recent trend in the macroeconomy and how it’s situated relative to history. Right now, the yield curve has been inverted for quite some time and the Sahm rule has been satisfied, both are historical indicators of recession.
Recessions are determined by the NBER’s Business Cycle Dating Committee. They always make their determination in hindsight and almost never in real time. They look at a variety of indicators and judge whether each declines, for how long, how deeply, and the breadth of decline across the economy. So plenty of ‘bad’ things can happen without triggering a recession designation.
In my expert opinion, recessions can largely be prevented by maintaining expected and steady growth in NGDP. This won’t solve real sectoral problems, but it will help to prevent contagion and spirals. The Fed can control NGDP to a great degree. In doing so, they can affect unemployment and growth in the short run, and inflation in the medium to long run.
One drawback of the NGDP series is that it’s infrequent, published only quarterly. It’s hard to know whether a dip is momentary, a false signal that will later be updated, or whether there is a recession coming. So, what should one examine? One could examine leading indicators or the various high-frequency indicators of economic activity. But those are a little too much like tarot cards and fortune telling for my taste.
Back in June, I watched the livestream of the Chapman Economic Forecast with Dr. Jim Doti (who was president when I was a student at Chapman). Typically, this is a valuable informative event, and the team has an excellent record of performance. They have often outdone other forecasters in predicting the future.
That is why I feel a little bad for making this post in the summer and tweeting out Doti’s prediction that we would have a recession by now.
To be fair to Doti, there has been a lot of uproar over this issue. Lots of people thought the economy would be bad. And lots of people feel like the economy is bad (the “vibecession”) even though it is objectively not. Many tweets have gone by about it.
Doti opened by saying his prediction had turned out to be wrong. He had an explanation for it (pictured below). You can watch it free here (recorded on Dec 14).
Doti said that he had expected a large fiscal stimulus in the form of deficit spending, however he had not expected the deficit to be so large. Debt-financed spending propped up an economy that was otherwise poised to contract. At least, that is a plausible story.
Looking forward, Doti does not predict a recession next year, but he does predict weak growth and possibly one quarter of GPD decline (not two).
The next part of talk was about the long-term consequences of deficit spending. Nothing is free. TANSTAAFL
In addition to vibecession, anyone following economics in 2023 needs to know what a “soft landing” is.
Fed Chair Powell: "There's little basis for thinking the economy is in a recession now."
The latest Fed projections show a soft landing in 2024.
Growth slowing, but positive +1.4% Inflation cooling to ~2.4% Unemployment rising to 4.1% (so just below recession trigger) pic.twitter.com/6cvgC6l5Nd
I watched the Chapman Economic Forecast Update for 2023 live on June 22 (you can watch the whole thing free here). Go to their website for free videos and links. They have an excellent track record for being correct.
This time, Dr. Jim Doti believes we are headed for a recession by the third quarter of 2023 or at least what he conservatively calls a “slowdown”. He hates to make dramatic predictions or deliver bad news, but he saw the inflation brewing back in 2021, and I remember him correctly predicting what was to come.
For one thing, the dramatic growth in the money supply at the beginning of the pandemic has been corrected into a sharp contraction of the money supply.
People have been joking about how the recession isn’t happening.
The middle segment of the forecast, which I recommend watching, is about investing. Fadel Lawandy cautions that stocks are not a good bet right now, with a likely recession looming.
The third segment is focused on the economy of California. I didn’t finish that part, since I don’t live there anymore.
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