The Housing Chronicles Blog: Ranking the accuracy of economic forecasts

Thursday, January 10, 2008

Ranking the accuracy of economic forecasts

Here's something the average newspaper reporter doesn't know: the amount of media attention given to an economist has nothing to do with accuracy. I say this because MarketWatch runs a monthly contest among 47 different economists and their teams, and many of them I've rarely seen quoted in either the business or mainstream press. Wouldn't it make sense to shower more attention on someone who got it right than someone with an obvious agenda (such as Lawrence Yun with the NAR)?

It seems that the highest-ranked economist for 2007 is now getting nervous about the chances for a recession due to December's very gloomy jobs report, but is hoping that it was a more an anamoly than a trend:

"We haven't seen lots of anecodotal or survey evidence tha the labor market is falling apart," Stanley argues. Data on jobless claims, tax receipts, and various surveys are consistent with a "moderation, not a collapse."

He takes some comfort in the apparent improvement in short-term credit markets in recent weeks, but that doesn't mean he think the crisis has passed. "It looks like it will take some time" for the financial institutions to recognize their losses. "Things are not magically going away."

The heightened concerns about the financial markets' weakness spilling over into the real economy have forced markets to re-evalute the risks - and therefore prices - of many assets. "It's going to take some time for price discovery for illiquid assets."

"We are now layering in a new set of risks," he said. A few months ago, the mainstream view didn't contemplate a recession, but now that's a "realistic possibility. If the unemployment rate rises to 6%, foreclosures are going to rise, for instance."

So what made him the highest-ranked economist? Coming close on various predictions to what actually happened:

Stephen Stanley
Chief Economist,
RBS Greenwich Capital

Nonfarm payrolls90,00094,000
Trade gap$57 bln$57.8 bln
Retail sales0.9%1.2%
Housing starts1.18 mln1.187 mln
New homes710,000647,000
Durable orders4.0%0.1%

Some others who performed admirably in the 2007 contest:

For all of 2007, following Stanley, the best forecasters were Ian Shepherdson of High Frequency Economics, Stephen Gallagher of Societe Generale, Robert DiClemente's team at Citigroup, Maury Harris' team at UBS, Ahmed Haseeb at JP Morgan, David Rosenberg of Merrill Lynch, Dean Maki at Barclays Capital, Brian Bethune and Nigel Gault of Global Insight, and Richard Moody of Mission Residential.

Citigroup had the most accurate forecasts in 2005 and UBS had the best in 2006.

So why aren't the economists we see quoted so often in our local papers on this list?

Perhaps because they have better publicists and so are on reporters' speed dials? Just a thought. But wouldn't it be nice to match performance with credibility?

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