Oh pandemic economy, you are a true masterpiece like the Mona Lisa. Every time we peek at you, we see something new, and by new, we mean chaos. To top it off, bankers predict that the world economic plane is flying towards a “hard-landing” recession. That’s a little too rocky for our taste buds. It’s like turbulence on an airplane. You never know when it’s going to happen or when it’s going to end.
We’ll have you know that forecasting has never been harder. In fact, over the past year, the range of analysts’ expectations for American quarterly GDP growth has been twice as wide as in 2019. Talk about a wide range. But hey, if we’re going down, at least we’ll have a good view on the way.
The International Monetary Fund (IMF) published a global outlook report that features the word “uncertainty” over 60 times. That’s twice the number of times the word appeared in April and October 2022 reports. Things got so crazy during the banking panic that investors weren’t sure what the Federal Reserve would do with interest rates in March. To add to the chaos, the upcoming meetings are just as unpredictable. It’s like trying to predict which contestant will get eliminated in a reality TV show.
Official statisticians are just as clueless as investors. Usually, they update their estimates of everything from GDP to employment as soon as they get new data. But lately, things have been different. GDP revisions in the euro area are four times bigger than normal. That’s like changing your outfit four times before leaving the house. Talk about indecisiveness.
Australia’s statisticians also revised their estimate of productivity growth by more than half for the third quarter of 2022. Shots fired, right? But wait, there’s more. America’s Bureau of Labor Statistics (BLS) had to revise their estimate of nonfarm payrolls by about 59,000 a month between the first and third estimates. That’s 40,000 more than their 2019 revision count. What’s happening? Perhaps the world is just more volatile than ever?
Besides, the pandemic had an enormous impact on everything, including crashing and soaring growth rates. It got so wacky that seasonal adjustments became irrelevant. Even the BLS changed the factors that they apply to inflation, making monthly rates harder to interpret. Core inflation in the final quarter of 2022 increased from 3.1% to a whopping 4.3%. The lack of consistency is like ordering chicken nuggets but getting fries instead.
To top it off, a growing share of people fails to respond to official surveys, making it difficult to gather information. Falling response rates can also lead to bias and affect data volatility. Some people may be disinclined to help statisticians, and who can blame them? We all have trust issues. This affects income statistics, with those who stopped responding to surveys appearing less prosperous than those who still do. In other words, it’s like comparing apples to oranges.
Omair Sharif from Inflation Insights went to the extent of suggesting that correcting for “non-response bias” may have contributed to recent significant revisions to American earnings data. So maybe it’s not always a good thing to be responsive after all?
Serious News: economist
