From a small northwestern observatory…

Yeah…. Friday seems to be busy.

Two of my favorite newsletters hit my desk today — the Conerly Businomics Newsletter from Dr. Bill Conerly and the Philadelphia FED’s Survey of Professional Forecasters. You can reach the first one via the link on the right of this page (scroll down and look for Conerly). I’ll take a couple of minutes on the second one, though.

For quite a few years, the Phily FED has surveyed a host of leading economic forecasters (this quarter, it’s 43), and reported their median expectations on inflation, GDP growth, etc., as well as the dispersion around the median. The median gives a fairly good idea of the central tendency of economic thinking, and the dispersion measures let us know how “solid” that central tendency is. In general, this group tends to move together, which means that the dispersion measures usually aren’t very great, and when they’re wrong, they’re all wrong together. (Intriguingly, that means that economic markets are efficient but for unpredictable economic shocks. That in and of itself could lead to a wonderful discussion of Arbitrage Pricing Theory, but I don’t have time or patience for that…)

Even more interesting — and this may be the best stuff in the report — is the change in sentiment from one quarter to another. In short, how is new information being captured in economic forecasts? The magnitude and direction of change is often a more important element in the market than the absolute value of things. For example, prices are what they are, but the CHANGE in prices over time, and the magnitude of that change, is called inflation. Get it?

The following chart shows the consensus opinions on GDP growth for the coming 3 years. As you can see, there is a generally higher consensus for this year and next, and in fact (as not reflected on this chart) the biggest “jump” is in near-term growth rates, which are expected to be particularly robust during the first half of 2011.

(c) Greenfield Advisors LLC, with data from the Philadelphia FED

Coupled with that, we see marginal improvement in the unemployment picture, although (and consistent with our own thinking) unemployment will continue to be a drag on the economy for quite a few years to come.

(c) Greenfield Advisors LLC, with data from the Philadelphia FED

For a complete copy of the survey results, visit the Philadelphia FED by clicking here.