A news report out on Monday said that 83% of companies in the S&P 500 beat expectations for earnings in the second quarter of the year, the first time that’s happened in more than a decade.
That’s been a common refrain over the past several months, as the economic recovery from the COVID-19 shutdowns has repeatedly outperformed what the “experts” expected. Here’s a sampling of headlines:
- “US economy added 1.8m jobs in July, beating expectations”
- “Jobs Numbers in July Beat Expectations for Third Straight Month”
- “Corporate Earnings Beat Analysts’ Lowered Expectations”
- “US consumer sentiment hit a 6-month high in September, beating economist forecasts”
- “U.S. new home sales beat expectations in July”
In some cases, the difference between what economists were predicting at the start of the pandemic and what’s actually occurred is stark.
Take the forecasts for unemployment.
In March, economists at the Federal Reserve Bank of St. Louis projected the unemployment rate would top 32%.
That same month, Goldman Sachs said the unemployment rate will peak at around 15% later in the year.
A May survey of economists by FiveThirtyEight.com found that the median forecast for the May unemployment rate was 20%.
Even White House economic adviser Kevin Hassett predicted April’s unemployment rate would be 16-17%.
What actually happened?
The unemployment rate peaked in April at 14.7%, then dropped to 13.3% in May.
The experts were just as wrong about the speed of the jobs recovery.
In FiveThirtyEight’s May survey, the median forecast was an unemployment rate of 12% in December.
In June, S&P Global said that it expected the unemployment rate would be 8.9% by the end of the year.
That same month, the Federal Reserve forecast an unemployment rate of 9.3% by 2020’s end.
In July, the Congressional Budget Office projected that unemployment would be above 10% in the final three months of the year.
What actually happened?
The unemployment rate fell to 10.2% in June, and then down to 8.4% in August, with four months left to go in the year.
We were also treated to a series of articles in July about how the recovery was supposedly “stalling out.”
CNN reported – in a story headlined “The economy is in deep trouble again” – that “a growing sense that the recovery is losing steam as coronavirus infections surge in California, Texas, Florida and other Sun Belt states.”
Around the same time, CBS News ran a story with the headline “U.S. economy stalls as the coronavirus continues to surge.” The story quoted Gregory Daco, chief U.S. economist at Oxford Economics, saying “The foundations to this recovery are cracking under the weight of a mismanaged health crisis.”
Reuters joined in with a story titled: “U.S. weekly jobless claims unexpectedly rise; labor market recovery stalling”
Bloomberg warned that “U.S. Economic Recovery Is Stalling and It May Get Even Worse.”
Yet shortly after all those dire predictions, the Atlanta Fed’s GDPNow estimate for the third quarter steadily rose from just over 10% to more than 30%.
In other words, as the actual economic data started coming in for Q3, they didn’t show an economy stalling, but one doing better than initially expected.
With less than 10 days to go, the current GDPNow estimate for Q3 is an eye-popping 32%.
Yet, we continue to see headlines warning about a stalling economy.
The unemployment figures for September won’t be out until the first week of October. And the government’s official estimate of growth in the third quarter won’t come out until Oct. 29.
Don’t expect anyone in the doom-is-just-around-the-corner crowd to issue any mea culpa if those numbers turn out to be better than expected.
So, the question we have is this: Why do mainstream economists and the press keep getting it wrong? Why do they keep making new dire predictions after their previous ones proved false?
Is it the result of flawed Keynesian-style economic models? Mainstream economists, remember, are using the same economic models that predicted a robust recovery from the Great Recession under Barack Obama, only to find those forecasts hopelessly optimistic.
Is it the result of an anti-Trump bias? After all, any good news about the economy is bad news for liberals in the economic profession and the press who are hoping to run President Donald Trump out office.
Whatever the reason, it sure isn’t based on the facts.
— Written by the I&I Editorial Board