Garbage in, garbage out

Posted by: Paul Donovan

15 Apr 2020
  • There was a wave of well-meaning economic forecasts yesterday, including from the IMF. The range of economic forecasts is historically wide. Economics is never precise, but there are two huge challenges at the moment. Economic data is either not timely, or timely and wildly unreliable. Survey based data needs people to fill in surveys. It takes a special kind of person to fill in an economic form in a lockdown. Using dodgy data in economic models produced dodgy results.
  • Further, this slowdown is structurally different. This was not caused by imbalances in the world economy. This is a deliberate policy-induced slowdown. The pattern may not match other slowdowns.
  • Various Euro area consumer price inflation numbers are due for March. Quite what these are going to record is not clear. How do you record the price of a restaurant meal in a lockdown? Should restaurant meals be included in CPI, if no one is buying them?
  • US retail sales data for March has different problems. The US lockdowns were state-led, and so took place at different times. Political polarisation meant that Republican consumers were (initially) less afraid of the virus than Democrat consumers. Any structural shift to online sales may not be properly captured.

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