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Economists Are Behind the Curve of Economic Realities!

Economics / Economic Theory Aug 19, 2010 - 01:32 PM GMT

By: Sy_Harding

Economics

Concerns about the U.S. economy began as a ripple when economic growth unexpectedly began slowing in the 2nd quarter. The continuing waves of negative economic reports in May, June, July, and now into August have had economists scrambling to revise their growth forecasts downward. But they have not been quick enough to keep up with the downward pace of the reports.


Thursday provided another groundswell of reports that were negative surprises, worse than economists’ forecasts.

New unemployment claims unexpectedly rose again last week versus forecasts of a decline. The Fed’s Philadelphia Region Mfg Index plunged to negative 7.7 in August from plus 5.1 in July, versus the consensus forecast that it would come in at plus 7.0. in August. The Conference Board’s Index of Leading Economic Indicators rose only 0.1% in July, compared to the forecasts of a 0.2% rise, while June’s reading was revised down to a 0.3% decline. The Mortgage Bankers Association reported mortgage applications for those wanting to refinance existing mortgages rose 17% in the first week in August, but applications for mortgages to purchase a house fell 3.4%, and are now 39% below their level of a year ago.

Those were on top of other recent reports that were also worse than forecasts; in the housing industry, retail sales, consumer confidence, manufacturing, small business confidence, and the U.S. trade deficit.

Therefore next Friday’s scheduled revision of 2nd quarter GDP may create more worries.

The report a month ago was that 2nd quarter growth was even slower than sharply revised forecasts, coming in at only 2.4%.

Given the additional negative reports for May and June that have come out since that report, don’t be surprised if next Friday’s report is a downward revision, to perhaps only 1.8% growth in the second quarter.

Meanwhile, what does the continuing wave of negative reports for July and August, two months into the 2nd half, say about the current forecast for second half growth of 2.8%, which would require a considerable pickup from Q2 growth, not worsening numbers?

They indicate that forward looking forecasts continue to be well behind the curve, and sharply lower revisions for second half growth are on the way.

Sy Harding is president of Asset Management Research Corp, publishers of the financial website www.StreetSmartReport.com, and the free daily market blog, www.SyHardingblog.com.

© 2010 Copyright Sy Harding- All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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