What's the difference between weather forecasting and economic forecasting? Weather forecasters are about 80% accurate, and economic forecasters WISH they were that accurate. We get mad at the weatherman on TV for that once a week boo-boo.... Why not economic weathermen? We do....
The big bad news yesterday from DC was that the estimates on GDP and unemployment were downgraded from their original estimates - severly... The original estimates were that unemployment would drop to between 7.8 and 8.0%, and that GDP (Gross Domestic Product) would rise between 2.4-2.9%.. Yesterday, the GDP guess went to 1.9-2.4%, and unemployment will range from 8.0-8.2%, which is where is currently is.. In effect, the government admitted what we all know: the economic is stuck in neutral, if not worse...
Your first question might be how do they seem to get these wrong so often? Pretty simple... No one wants to forecast bad news ahead, because the White House often puts pressure on them to paint a rosier picture, so the press has one less thing to interrogate them. Hence, the variance of .5% on GDP and .2% on unemployment. They know if we'll gain 100,000 jobs a month (which is no change) or 300,000 (.2), but who wants to hear there are no prospects this year, especially in a re-election year??? The White House likes their pictures painted a soft red, not in black....
The change in GDP is particularly disturbing, because they're essentially saying their estimate was off between 16-25% - not exactly close, was it? So, either the economic forecasters in DC really flubbed on doing their job, or they were too scared to tell the truth. Yes, they do that. A quick look at our master thesis on the correlation between unemployment and re-election tells you why....
Like we stated if the rate drops overall between April and October, the incumbent wins almost 100%, if it is stagnant or rises, they lose - 100%. Since April was at 8.1%, it tells us a lot.... Going by the original estimate, the rate would be below 8.1%, and Barack Obama would win.. Now, chances are the rate may not change or go slightly up, and Mitt Romney beats him. Maybe they don't realize this, but we do.... Pushing back the bad news as long as possible keeps the feeling that the economy is going down the tubes long term to a minimum. In short, getting bad news as little as possible makes Americans feel better..
Now, the more important question: did they adjust it correctly, or are they still underestimating the forecast? Possibly.. the numbers they released seem to be more inline with what the economy HAD done in the last couple months, rather than what it WILL do in the future. We'll soon find out, and America will choose what to do then. Right now, America has some doubts if Mitt Romney is the man to fix the economy. If it falls further, then no matter how much they like Barack Obama, they may very well give up on him....
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