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Forecasters are bad at forecasting, study finds
A few days before important economic data comes out — housing starts, unemployment, durable goods orders, etc. — analysts guess where they’re going to end up. Usually, they’re not right on the money. And now, it turns out, their errors are almost predictable.
The research team at Goldman Sachs put out a paper Thursday morning analyzing the magnitude and direction of “surprise” in every release of data — that is, the difference between the consensus expectation of economists polled by Bloomberg and where the indicator actually fell. They found that the forecasts tend to underestimate the outcome for several months in a row, and then overestimate it for several months in a row. In other words, if the forecasts were overly optimistic in one month, they’re more likely to be overly optimistic the next month, as well.
That’s surprising, because you might expect economists to adjust their forecasts based on being wrong the last time. Instead, they seem to think they were still close to right, until they finally change their minds and overcompensate in the other direction.
And guess what? The phenomenon seems to have gotten more pronounced in recent years. Here’s the measure of the “autocorrelation,” or the degree to which one consensus forecast will match up with the previous one:
That probably happened because the economic shocks of the last four years have just been so much greater than those of the relatively smooth years before them, and analysts have a harder time adjusting to structural changes.
Why does this matter? In part, because markets react to the difference between whether an indicator exceeds or disappoints analysts’ expectations. So if you know that the forecast is more likely to be wrong in the same way that it was last month, you can make bets on the market reaction that are more likely to be right.
Mostly, though, it’s just an interesting window into how people who are supposed to be able to tell where the economy is going have their own blind spots. And it will be fascinating to note, after realizing that bias, whether they adjust to get rid of it.
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In the least surprising information of the day, economic forecasters aren't very good at what they do:
"Forecasters are bad at forecasting, study finds"
http://www.washingtonpost.com/blogs/wonkblog/wp/20...
This follow's last year's report from the Federal Reserve of KC about how bad CBO deficit and debt projections have proven:
"How Good Are the Government’s Deficit and Debt Projections and Should We Care?"
Basically, the more variables the less chance of an accurate forecast. It seems pretty simple notwithstanding all the people who valiantly declare that so and so is always right.
"Forecasters are bad at forecasting, study finds"
http://www.washingtonpost.com/blogs/wonkblog/wp/20...
This follow's last year's report from the Federal Reserve of KC about how bad CBO deficit and debt projections have proven:
"How Good Are the Government’s Deficit and Debt Projections and Should We Care?"
Basically, the more variables the less chance of an accurate forecast. It seems pretty simple notwithstanding all the people who valiantly declare that so and so is always right.
It's really more a case of 'selective blindness'. The fact is that so many economist s today are either supply siders or Keynesians and so polarized due to political ideology that their own dogma is militating their extrapolations. Seriously how can anyone still be advocating contractionary policy, be a deficit hawk when all economic data points to its malevolence, or still claim that high unemployment is structural rather than cyclical. Yet, supply siders still propound such messages – despite the contraries. I'm not saying that Keynesians don't have their proclivities but not to the extent of supply siders who no longer have an actual evidence to buttress their beliefs -- and that all they are -- "beliefs'.
The older I get the more I understand that money is value-less, and as such should be used rather than stored.
I didn't say say spent, mind you.
But if you park it or sit on it, it does nothing but lose its false luster (including gold). t's nothing more than a metric. it can't feed you (or others), it just sits there doing nothing.
Can't buy you love, either, as a wise man with lots of money once said ... And before you say it, a prostitute does not give you love.
I didn't say say spent, mind you.
But if you park it or sit on it, it does nothing but lose its false luster (including gold). t's nothing more than a metric. it can't feed you (or others), it just sits there doing nothing.
Can't buy you love, either, as a wise man with lots of money once said ... And before you say it, a prostitute does not give you love.
"That’s surprising, because you might expect economists to adjust their forecasts based on being wrong the last time. Instead, they seem to think they were still close to right, until they finally change their minds and overcompensate in the other direction."
Surprising to whom?
Surprising to whom?
These are mostly the same people that advise polititians on economic policy so it should be no surprise that the Federal Budget is always in deficiet and the debt only goes up, it never goes down.
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