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.