I&I Editorial
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
Donald Trump is a businessman and knows something about economics, taxes and regulations. He campaigned in 2016 on lowering taxes and releasing the regulatory straitjacket that Obama/Biden utilized in order to impose progressive imperatives in lieu of cogent strategies. It is not surprising that Trump’s pre-covid policies achieved remarkable growth and wage increases for the poorest segments of our population.
Democratic presidential contender Joe Biden is a pleasant politician whose affability was honed through more than four decades of baby-kissing, back-scratching and vote-trading. He has a wonderful smile and unassuming demeanor and, we are told, he is the nicest guy on the Beltway stage. We also understand that his economic chops are meager.
Not to worry, for entering stage left are cadres of liberal lieutenants whose enthusiasm for Donald destruction is unabated. In fact, Mr.Biden’s most important role now is to become part of the collectivist chorus, for he is nothing but a mouthpiece for others, a stalking horse for lance carriers like Bernie Sanders and Alexandria Ocasio-Cortez, who program his teleprompter like a ventriloquist and have all of the energy and nothing of the economic smarts of a progressive in heat.
I believe the biggest reason for the abrupt turn around is de-regulation.
In real estate, it’s location, location, location.
In the media, it’s narrative, narrative, narrative.
The US has experienced negative real GDP and job growth since President Trump took office. Jobs down over 11 million since February; down 4.7 million since January 2017. Real GDP down 3.9% since the 1st quarter of 2017; down over 10% so far this year. Plus rising deficits.
But I guess if I&I grades on an expectations curve they can try and make that look good. No matter how hard they try, it is not a good record.
Republican presidents are consistently bad for the economy:
– Ten of the last 11 recessions started under a Republican president. The last Republican president who didn’t have a recession start on his watch was James Garfield–who only served six months in 1881 before he was assassinated.
– Since the Great Depression the only Republican president who didn’t oversee an increase in the unemployment rate was Ronald Reagan. No Democratic president oversaw an increase in the unemployment rate.
You’re analytical ability is as stunted as your facts. Trump is not responsible for prolonged economic shutdowns due to CoVid. That responsibility lies with Governors and local officials around the country, which just so happen to correlate strongly with Democrat leadership.
I also find it amusing when partisan hacks scrounge up some concern over rising deficits when a Republican president is in office, even though government spending is a congressional responsibility.
The rest of your screed is as factually challenged as it is devoid of critical context. The fact that Obama clearly saw increases in real unemployment simply proves the rest of your facts not in need of dismantling. Despite having 8 years to fix a problem rooted heavily in Chris Dodd and Barney Frank’s fiscal chicanery, Obama saw negative GDP in his last year in office. But I’m betting you mistakenly attribute to Obama the correction you saw in Trump’s first three years.
The real fact that presidents are only responsible for negative direct influences on the economy and not positive direct influences is a problem that you, and even the editors here suffer from, but I’m guessing you wouldn’t be able to grasp the concept behind that.
The current recession started in February–before the first shutdown ordered by any governors.
The reason “partisan hacks” show concern about deficits under Republican presidents is because deficits generally decline under Democratic presidents and increase under Republican presidents. The last Democratic president who left a larger deficit than he inherited was President Carter. The last Republican president who left a smaller deficit than he inherited was Eisenhower.
Yes, President Obama inherited an economy that was losing 700,000 jobs a month and the unemployment rate went up initially. However, Obama inherited an unemployment rate of 7.8% in January 2009 and left an unemployment rate of 4.7% in January 2017.
Real GDP in President Obama’s last year grew!!! It was $17.6 trillion in the 1st quarter of 2016 and $18.0 trillion in the 1st quarter of 2017 when he left office, a growth rate of 2.3%.
Conservatives need to decide whether presidents should get credit/responsibility for the economy they oversee. If yes, then Democrats do better on job growth, real GDP growth and deficit reduction. If no, then Republican presidents are just really, really unlucky that the economy performs worse under their watch.
The economy is recovering, with Barack Obama hardest hit. The thing about this particular recovery is that Barack Obama cannot make ANY claim on it. The Democrats could sort of claim that Trump inherited a recovery that started under Obama, but they can’t make that claim now. This recovery is totally on Trump’s watch.
It’s not true that Democrats could lay claim to a recovery under Obama.
When you look at the quarterly GDP numbers during Obama’s years, they show an economy in spasms. In Obama’s last year, the economy showed negative GDP.
Look at the quarterly growth beginning in 2017 and you see level, sustained, and robust economic growth up until Governors of high GDP states start shutting down their economies in mid 2020. Yet the economy that had stabilized during Trump’s tenure is roaring back because of its fundamental soundness.
So you are correct to say that Obama can’t claim ownership of this recovery, but the data show that he couldn’t claim ownership of any recovery.
Real GDP growth in President Obama’s last year was a positive 2.3%, from $17.6 trillion in the first quarter of 2016 to $18.0 trillion in the first quarter of 2017 when he left office. It was not negative as you falsely claim in two of your comments on this post.
https://fred.stlouisfed.org/series/GDPC1
No, not really. My business revenue is soft, I’ve got two tenants who haven’t paid rent in months and I can’t evict them. My daughter is unemployed and living back at home and now her boyfriend lost his job. Two of my best friends lost their career positions. Three of my favorite restaurants and stores have permanently closed.
Hardly a stellar economy.
Notice that economic expectations over the past twelve years from “experts” seem to invert with the political affiliation of the sitting president, yet the results tend to be unexpected regardless.
We need a new “expert” class.