Whose Economic Forecast Should You Use?
I like my own forecast. Of course.
But no business owner or executive should bet the company on one economist's forecast. It's impossible to avoid using a forecast. The guy who scoffs at any forecast still has to come up with an idea of what his company's sales will be next quarter and next year. The economy will figure into that, so claiming that you don't use an economic forecast simply means you don't want to acknowledge the true basis for your decisions–which is probably the seat of your pants.
So you need a forecast. Should it be Bill Conerly's? Two decades of forecasting has humbled me. I like my forecast, I think it's right, but it may not be the best planning tool. I like looking at consensus forecasts, the average of many professional forecasters. The Wall Street Journal has recently released it's survey, and the results are not pretty–but they are much more upbeat than the newspaper headlines. Here's the picture:
The key point is that the average forecast is for decline in the current quarter and next, with slow growth from mid-year on. My own forecast has a slight gain in GDP second quarter, and mildly better growth in the second half of the year.
The idea that this recession is fundamentally different and will last for years–"this time it's different"–is not shared by my peers, nor by me, and I discussed in a recent post.
There's a lot to be said for managing your business as if the consensus forecast is the most likely path–unless you really think that I'm a better-than-average economist. (In which case, thanks.)
Comments
Bill,
Love your monthly charts and notes.
Take a look at Harvard professor of economics Robert Barro’s article in the Wednesday Wall Street Journal, page A15 titled, “What are the odds of a Depression?”. His analysis suggests more than a 20% chance of this US downturn being severe enough to be classified as a depression (10% drop in GDP).
Business managers should plan based on several scenarios, giving each scenario a rough probability of occurance. This helps them think about strategies under various circumstances. Like buying fire insurance even though that scenario is unlikely.
David Cooke