US Economics Analyst_ A Look Back at Economic Data Surprises, Our Forecast Performance, and Market Reactions in 2024 (Walker)

Summary of Economic Data Surprises and Forecast Performance in 2024 Industry Overview - The report focuses on the US economy, analyzing economic data surprises, forecasting performance, and market reactions throughout 2024 [2][5][6]. Key Points Economic Growth - The US GDP increased approximately 2.5% Q4/Q4 in 2024, surpassing both Goldman Sachs' forecast of 2% and the consensus forecast of 0.8% [2][6]. - The growth forecast was adjusted multiple times throughout the year, initially boosted by recognizing the impact of immigration on labor force growth [6][8]. Inflation Trends - The core PCE price index rose around 2.8% Q4/Q4 in 2024, which was higher than Goldman Sachs' forecast of 2.2% and the consensus of 2.4% [2][13]. - Key contributors to the inflation surprise included methodological changes in calculating owners' equivalent rent and broader applications of "catch-up inflation" beyond just rent [2][13]. Forecast Performance - Goldman Sachs achieved a hit rate of 67% for economic indicator forecasts in 2024, slightly above the 63% average from the previous eight years [2][18]. - Strong performances were noted in indicators such as the unemployment rate (100% hit rate), core PCE (91%), retail control (86%), and core capex orders (86%) [2][18][24]. - Underperformance was observed in the Philly Fed (45%) and average hourly earnings (33%) due to unexpected technical distortions [2][24]. Market Reactions - Market sensitivity to inflation data was significantly elevated, with Treasury market sensitivity at 5.5 times the historical average and equity market sensitivity at 2.2 times normal [32][37]. - In 2024, equity prices consistently rose in response to positive growth surprises, indicating a stronger conviction that inflation would remain controlled despite robust growth [3][34]. Future Outlook - Looking ahead to 2025, forecasts suggest healthy growth and lower inflation, which may lead to reduced sensitivity to monthly economic data [42]. - The anticipated economic policy uncertainty due to potential changes in government control could also impact market reactions [42]. Additional Insights - The report highlights the importance of alternative data sources and proprietary indicators in improving forecasting accuracy [23][29]. - The performance of second-tier economic indicators was consistent with previous years, maintaining a hit rate of 59% [25]. This summary encapsulates the critical insights from the economic analysis conducted by Goldman Sachs, providing a comprehensive overview of the US economic landscape in 2024 and expectations for 2025.