A Sliver of Optimism

One of the scary things about this fall’s descent into economic chaos was the failure of economic forecasters to keep pace. Every week economists would predict what they said were terrible things, and then the data would come in much worse, reinforcing the overall impression that no one knew what was going on.

Buried in all the negative reports about the December jobs data was one fact that was a tiny bit encouraging: the December job losses were almost exactly what forecasters expected, on average. This indicates that it’s possible that the macroeconomic community has come to grips with the magnitude of the downturn; if you’re feeling particularly giddy, you might even infer that this means that their GDP forecasts are in the right ballpark, which means (according to the WSJ) that the economy should start growing in Q3.

I wouldn’t go that far, though, and I think that Q3 forecast is too optimistic. It takes time to plan and execute a layoff (I’ve been there), so December layoffs are based on revenue projections based on data from October and maybe November. Because sales continued to fall faster than expected in November, companies will find they have to lay off more people than they initially expected, and that will drag into the new year. Furthermore, no one really knows how much the American household will shift from consumption to saving, and my sneaking suspicion is that it will be more than most people expect.

So all I can offer is a tiny sliver of optimism, that the people in the forecasting business are at least on the same planet as the rest of us. But still no one is sure what planet we’re on.

4 thoughts on “A Sliver of Optimism

  1. One of the bright spots of this crisis might be that it will bring about a cultural change in Americans. As a nation, we might be goaded into becoming more thrifty and less free spending (also a little more cognizant of risk). Though thrifty behavior is not a positive at this point, in general it is a good idea.

    One has to wonder however whether this crisis will completely change America’s free spending ways. I truly doubt it. Once it appears that the crisis is easing, I think Americans will want to start consuming again. Never underestimate America’s ability to consume.

    With that in mind, I can easily foresee growth again in Q3. With the summer at hand and consumers and vacationers eager to forget about economic doldrums, the great American consumer might just pull us out of recession.

    As for the planet we are on, considering the last eight years and current events in the Middle East, this must be Mars.

  2. Both Oct and Nov employment losses were revised downward i.e., more negative.

    And, according to Abelson in his piece this weekend, the “birth/death” model added upwards of 70,000 “new” jobs to the total.

    Merrill’s econmist is suggesting that the December number (considering above) is more accurately calculated at -750,000… he goes on to comment that a -1,000,000 monthly data point is not to be dismissed as a 0% probability.

  3. I very much doubt it was economic forecaster to keep pace. Just look at the U.S. government which took a year to announce that the U.S. was in a recession. I think it has more to do with the fact that nobody wanted to be labelled “crazy” and fired.

    I recently saw an interview on CNN of an investment banker who said that “had he mentioned the word recession or depression” 12 months ago he would have probably lost his job and labelled “crazy”…

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