Expect the Unexpected
February 25, 2010 by admin · Leave a Comment
From The Daily Capitalist
Today there was a lot of unexpected news.
Unemployment claims increased by 22,000 last week and the culprit is … global warming. This was unexpected.
Orders for durable goods fell 0.6%, the biggest drop since August. This was unexpected.
Here is the report on unemployment:
The number of Americans filing first-time claims for unemployment insurance unexpectedly increased last week …
Initial jobless applications rose by 22,000 to 496,000 in the week ended Feb. 20, Labor Department figures showed today in Washington. The total number of people receiving unemployment insurance gained and those receiving extended benefits decreased. …
Continuing claims rose 6,000 to 4.62 million in the week ended Feb. 13. The continuing claims figure does not include the number of Americans receiving extended benefits under federal programs.
The unemployment rate among people eligible for benefits, which tends to track the jobless rate, held at 3.5 percent in the week ended Feb. 13, today’s report showed. Nine states and territories had an increase in claims for that same week, while 44 had a decrease. …
A Labor Department spokesman said part of the reason for the increase in weekly claims was the processing of a backlog of applications in mid-Atlantic states and New England, where snowstorms hit earlier this month. …
Economists forecast weekly claims would fall to 460,000, from a previously estimated 473,000 for the week ended Feb. 13, according to the median of 43 projections in a Bloomberg News survey. …
“Strong manufacturing is not enough to support the labor market as a whole, it seems,” Ian Shepherdson, chief U.S. economist at High Frequency Economics Ltd. in Valhalla, New York, said before the report. [Ya think, Mr. Shepherdson?]
Then durable goods orders decreased:
Orders for durable goods excluding transportation unexpectedly fell 0.6 percent, the most since August, while a measure of bookings for business equipment showed its biggest decrease in nine months, the Commerce Department in Washington said. The Labor Department said new claims for unemployment insurance rose to a three-month high. …
Factories may be taking a pause to gauge demand after boosting production in the second half of 2009 to replenish inventories. …
Orders for motor vehicles and parts dropped 2.2 percent in January after a 5.5 percent gain. …
Economists forecast orders for durable goods excluding transportation equipment, which tends to be volatile month to month, would rise 1 percent, according to the median of 42 economists surveyed by Bloomberg News. …
“There’s no reason to think this is the start of a double- dip — some back and fill is standard operating procedure in recoveries,” Chris Low, chief economist at FTN Financial in New York, said in an e-mail to clients. “ [Wait, if it's SOP, then why didn't the economists expect ...]
You may wish to ask yourself why we even listen to economists’ forecasts. I read them because I need to be entertained. Maybe I should take Nassim Taleb’s advice and just ignore the news. But then I couldn’t get filthy rich writing this blog and entertaining you.
But, I pose a serious question. Why do we listen to these guys?
Last April I wrote an article “Why You should Ignore Economists.” I gathered housing forecasts for the past five years from The Daily Capitalist’s Research Vault, and showed why the NAHB fired David Seiders too late and why the NAR fired David Lareah too late. In my opinion they guys were pimps for the industry. Let it not be said that I think all economists are pimps. But for the most part their method of analysis is flawed because their basic economic theories are flawed (neo-Keynesisn, econometrics, Monetrarism).
What most economists do is read all the reports of the other economists, get a feel if the trend is positive or negative, and then extrapolate last month’s data into a prediction for the future. As I said in the article:
Economists like these operate on historical data. The idea is that by looking at the past you can predict the future. They failed to look at what was happening right in front of their eyes. They failed to see that massive money pumping by the Fed created a classic boom in housing that went bust when money supply declined.
If they are right they are just lucky. If they are wrong, they are unlucky.
Hayek and Mises taught us that you just can’t sit down with a hunch and see if the data fits. If you have billions of economic actors, it’s hard to know which data are the correct data. So, you’ve got to start with a theory, test it with logic, reason, and the general law of economic, and then look at data. Even then you can only paint with a very broad brush. Please read Hayeks Nobel speech, or my article on this subject.
I have the luxury of being a writer about economics and not an economist. Since you’re not paying for my forecasts you probably don’t think highly of it. Which you shouldn’t. But I am going to make a forecast. The GDP preliminary numbers for Q4 2009 are coming out tomorrow (Friday). These numbers will replace the advance report which showed a 5.7% increase. The final number come out on March 26.
I predict the preliminary GDP will be revised lower than 5.7%. Let me say that I have the luxury of being a writer on economics not an economist. Since you’re getting my forecasts for free you should, rightly so, consider the value of something that’s free.
If I’m right I’ll be considered smart (lucky). If I’m wrong I’ll be an economist.
