(Bloomberg) – The reopening of the US economy is making it difficult for economists to forecast.
Estimates for two of the most widely followed economic reports this month – the consumer price index and the employment index – have fallen far short of the actual numbers. April payrolls, reported last week, were 730,000 below the median estimate in a Bloomberg survey. On Wednesday, government data showed that the overall rise in the CPI nearly quadrupled the consensus forecast.
The unprecedented nature of the pandemic has made forecasting difficult for economists. The recent employment surprise was the worst miscalculation on the downside, while the price index was the biggest miscalculation on the upside in records dating back to 1996, according to data compiled by Bloomberg. This is not the first time this has happened during the covid-19 pandemic – economists also struggled to accurately forecast a sudden improvement in employment data last year, for example.
Economists say their models are not designed to incorporate massive changes such as those resulting from rapid business reopening or supply chain difficulties. High-frequency data and anecdotal evidence provide additional information, but it is not an exact science.
“Economic models are very bad at predicting tipping points,” said Michael Gapen, chief economist at Barclays Plc. “They are great for showing trends, but the pandemic is a series of tipping points.”
Nor are there many periods in history to compare with the pandemic. The business cycle that most closely resembles today is World War II, when there was a massive shortage of some products and it held people back from buying certain items, Gapen said.
The models also can’t predict things like a global semiconductor shortage or sudden surge in travel demand, resulting in huge short-term price swings, said Jennifer Lee, a senior economist at BMO Captial Markets. According to the government report, costs for used cars and trucks, airfares and hotels rose to highs in April.
Original Note: Economists Struggle to Forecast US Recovery With Huge Misses
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