Counterparties: The data downturn
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Economic projections matter, because they are used to make real-world policy. Which is the second piece of bad news surrounding last week’s dismal jobs report – not just the horrible jobs numbers themselves, but also the fact that no economists expected them. Indeed, the economic consensus was for more than double the number of jobs actually created in May. Are the world’s policymakers buying into that all-too-cheery view of the economy?
Underestimating how bad things are, it turns out, has been something of a trend of late. Economists expected US factory orders to rise by 0.2%; in fact, they fell by 0.6%. More broadly, 18 of the 21 economic indicators released last week came in weaker than expected, per the folks at Bespoke Investment Group.
Does this matter? Calculated Risk points out – rightly – that economists’ missed projections don’t necessarily tell us anything other than how wrong economists tend to be. And John Mauldin notes that “the Blue Chip economics consensus has never forecast a recession. And they largely miss recoveries.” Here’s Mauldin’s chart:
Meanwhile, the missed projections in the US are being echoed in a flood of bad global economic data. As Edward Hugh notes, purchasing indexes for Germany, France, Italy, Spain, the Netherlands and Greece are all suggesting contraction. With growth in the BRICs slowing considerably, Hugh says that “the world’s industrial base is now, even in the best of cases, barely ekeing out growth.”
Certainly the markets don’t believe that policymakers are going to do anything about the slowdown. Europe, in Greg Ip’s estimation, is in the last phase of the Feldman CRIC cycle: crisis, response, improvement and, finally, complacency. Ryan Avent, echoing Brad DeLong’s words from last week, reads the latest data downturn and asks if “a broad institutional crisis appears to be brewing” where the markets increasingly distrust policymakers’ ability to do anything helpful. When we’re hearing whispers of a “broad-based global economic slowdown,” the world’s politicians and central bankers can’t afford more wrong projections.