Their views have become the staple diet of news services. On the hour, every hour we are treated to economic expert A from financial institution X, followed later in the day by Mr or Ms B from bank Y. Endlessly they feed us what they pretend are learned forecasts on what the future holds for us. And weeks or months later when we compare these prognostications with what actually happens when we discover that the words were normally drivel. These expert forecasters so beloved of the media are about as reliable as the horoscope writers that appear in their newspaper’s inside pages.
Today’s example of their declining relevance comes with the releaseof February figures on International Trade in Goods and Services by the Australian Bureau of Statistics. The newsagencies Reuters and Bloomberg obviously are manned by people with a warped sense of humour because they both collect opinions from a panel of commentators on what this and other key statistical releases will show. According to both, the collective wisdom of 18 economists on what the seasonally adjusted trade figures would show was a surplus of $A700 million with Reuters saying the estimates ranged from a surplus of $1.6 billion to a deficit of $150 million. And the actual figure for February was? The trade surplus expanded to A$2.11 billion from a revised A$926 million in January.
Yesterday, as we published in Crikey, the supposed experts in the game of analysing what is happening in the Australian economy were of the opinion that retail sales in February would be down a modest half a percent which was the median of the 18 economists surveyed. The official figure showed a drop in seasonally adjusted terms of a full two percentage points!
As further evidence of the irrelevance of most forecasting just look at how the world’s best and brightest economists at bodies like the OECD, the World Bank, the IMF and our own Treasury and Reserve Bank keep revising their estimates. Within a matter of weeks of being published with due solemnity all the guesses are being revised.
I am reminded of something I once read somewhere that the best guess of what will happen to an economic statistic in the next period is to assume that it will be the same as in the last period. Apparently that simple method proves more accurate that any of the self-styled forecasters.
Some hope on the recession front. With all and sundry now assuming that what the economists call the “technical” conditions for a recession — two consecutive quarters without growth — will be met, the balance of trade figures must be a little confusing. The strong trade performance in January and February this year has resulted in a combined surplus of over $3billion. In the same two months of 2008 the figure was a deficit of $5.7 billion. That is quite a turnaround.