|| Print ||
|Written by Linda Baker|
|Thursday, November 08, 2012|
Conflicting economic forecasts point to the need for more analysis in a data-saturated age.
BY LINDA BAKER
In our data-saturated age, reporters, business owners, and policy makers are inundated with economic forecasts that monitor changes in housing starts, unemployment, consumer confidence, manufacturing etc. Such indicators are intended to guide executives and government officials as they make decisions based on their view of the future. Increasingly, economic forecasts are also mined for political cachet. As the Daily Beast’s Daniel Gross observed yesterday, it was the much-hyped September Bureau of Labor Statistics jobs report — companies added 114,000 jobs that month — that gave Obama his winning edge.
“It was the single most consequential economic data point in recent political history,” Gross wrote. The “unemployment data turned out to be (Obama’s) impregnable fortress.”
Having a job determines consumer confidence, the housing market and other economic activity. But how to determine the value connected to the abundance of other economic data? Do economic forecasts, which appear with increasing frequency, provide an accurate picture of the economy and where it’s headed? Or are they so much noise, especially in a recession and recovery that has confounded all predictions?
Consider three Oregon economic forecasts released this past week and dutifully reported by the news media:
October 30: a Federal Reserve report predicts that Oregon's economic growth through March is expected to be among the fastest in the U.S. The Philadelphia Fed says the Oregon Coincident Index, based on housing permits, unemployment insurance claims, manufacturing data and interest rates, is poised to expand by more than 4.5 percent over the next six months.
November 1: Another positive sign, albeit with a disclaimer, this time from Oregon’s Economic Insecurity Index, which fell 5.8 percent in 2011. The gauge measures the share of Oregonians that lost at least 25 percent of available household income in a single year. Despite the good news, the report shows that economic insecurity in Oregon remains higher than the national average.
November 5: Some bad news from a University of Oregon gauge, showing that the state’s economy retreated in September, dampened by one of the steepest monthly jobs losses — 7,900 — since the recession. To calculate Oregon’s growth, the UO gauge uses a variety of factors, including manufacturing data, home permits, consumer sentiment and hiring among a handful of industries.
Collectively, these three reports present conflicting, or ambiguous, pictures of economic trends. One suggests the economy is expanding rapidly, another claims household income is declining at a slower pace while noting that economic insecurity is still high, and yet another documents a slower than normal expansion. How to make sense of the different forecasts and how to decide which one is the best predictor of economic trends?
“You use mine,” joked Tim Duy, the University of Oregon economist who compiles the monthly UO forecast. I talked to Duy yesterday and he agreed proliferating economic data presented something of a conundrum. The key to making sense of economic forecasts, he said, is understanding the context behind the numbers, recognizing what the indicators measure and understanding that most economic forecasts provide a snapshot in time, not an analysis of long term trends.
For example, Duy said the economic insecurity index measures impacts on lower income households. “How useful is that to a business person a firm owner — I would think not particularly useful,” he said. On the other hand, policy makers trying to understand the needs of low income Oregonians would likely find that information meaningful.
The federal reserve data projects rapid economic growth in Oregon. But it’s important to know that the latest (September) report is responding primarily to a rapid increase in building permits, Duy says. What’s more, he said, three months earlier, that same index “pointed toward recession territory.”
“You have to know the context and you’re only going to know the context if you’re someone like me,” said Duy. The economic "truth," he says, is probably somewhere in between July’s gloomy assessment and September’s more positive outlook: Oregon’s economy is growing “but probably not at a super fast pace.”
Duy's own chart documents a steep increase in job losses to suggest a slowing of the economy. But Duy himself notes that the state’s employment data is volatile, and that “the general story my index is telling is that things are getting better.” Or, as Duys says of his own monthly forecast: “it’s a snapshot of the available data, but the data is in flux.”
It doesn’t take a rocket scientist to understand that that value of a given economic forecast depends less on the individual forecast than how it fits into long term trends. But if that conclusion is a no brainer, it also flies in the face of a world that is less a coherent whole than a growing mountain of data.
As Gross pointed out, in the presidential election, virtually every data point — about home prices, car sales, consumer confidence — became a point for or against one candidate's larger political position. But if Duy's analysis of this past week's economic forecasts harbors a message, it’s that every economic forecast should come with a disclaimer. Warning: in the information age, data is not the same as knowledge.
Linda Baker is managing editor of Oregon Business.
Wednesday, July 02, 2014
BY JESSICA RIDGWAY | OB WEB EDITOR
Dress for Success Oregon promotes the economic independence of disadvantaged women by providing professional attire, a network of support and career development tools.
Friday, June 06, 2014
BY KATIE AUSBURGER | OB GUEST CONTRIBUTOR
How to build a hipster-friendly work environment.
Tuesday, July 08, 2014
BY LINDA BAKER | OB EDITOR
The New Yorker recently published a sharply worded critique of “disruptive innovation,” one of the most widely cited theories in the business world today. The article raises questions about the descriptive value of disruption and innovation — whether the terms are mere buzzwords or actually explain today's extraordinarily complex and fast changing business environment.
Update: We caught up with Portland's Thomas Thurston, who shared his data driven take on the disruption controversy.
Monday, July 07, 2014
BY TOM COX | OB BLOGGER
Named after the 2010 experiment by Thomas Ryan, "Robin Sages" are fake social media profiles designed to encourage linking and divulging valuable information.
Thursday, July 03, 2014
BY TED AUSTIN & MIKE BAELE | GUEST CONTRIBUTORS
The Office of Economic Analysis announced that Oregon is currently enjoying the strongest job growth since 2006. While this resurgence has been welcome, the lingering effects of the 2008 “Great Recession” continues to affect Oregon businesses, especially with regard to estate planning and business succession.
Thursday, July 10, 2014
BY TOM COX | OB BLOGGER
Tom Cox interviews Dr. Mark Goulston, author of Just Listen, Discover the Secret to Getting Through to Absolutely Anyone.
Thursday, July 24, 2014
BY LINDA BAKER | OB EDITOR
Remember the naysayers? Those who called the South Waterfront aerial tram a boondoggle? Those who rejoiced at the massive sell off of luxury condos at the John Ross and Atwater Place?
|The Private 150: Bigger But Leaner|
|The Perfect Food|
|Taxis Uber Alles?|
|Powerlist: Staffing Firms|
|Zillow to acquire Trulia for $3.5B|
|Dollar Tree to buy Family Dollar|
|Facebook revenue surges 61%|
|Walmart unexpectedly fires CEO|
|GM profit declines 80%|
|Study: Dogs can feel jealousy|
|Boeing profit surges 52%|
Vigilant enters a New Year with a new president.
How George Fox has become one of Oregon's largest private universities.
Forest Grove sees growth in the burgeoning food and beverage scene.
Lane Powell Shareholder Susan K. Eggum has been elected as vice chair of programs and projects for the International Association of Defense Counsel’s (IADC’s) Employment Law Committee.
Geffen Mesher is saddened to announce the passing of long-time shareholder, Tom “Mike” Anderson, who died on July 10, 2014, from liver disease diagnosed after recent heart surgery. He was 55 years old.
Fifteen Lane Powell attorneys have been named 2014 “Oregon Super Lawyers,” and another five attorneys have been named as “Oregon Rising Stars” by Super Lawyers magazine.