Predicting the Future

Wall Street markets move on the daily predictions of ‘experts’ who often make magical prognostications based on their mined data and their perceptions of the ever-changing landscape of global economic activities.

The originators of economic statistics generating these forecasts are often institutions, money managers, research entities, journalists, and economists—some honorable and some merely opportunistic and claiming to have authoritative positions upon which to espouse credible narratives. The issue is that the media in general often seems to be interpreting current events and forecasts through their own overly dramatic, politicized, biased, and self-serving lenses rather than merely observing and reporting information. Too often the pressure to grab the public’s attention outweighs dispassionate, unbiased analysis and reporting (witness recent politics and various projected outcomes of government stimulus and infrastructure legislation). Objectivity- challenged views of ‘experts’ strategically placed to sound off about the subject at hand conveniently validate the views of the media source, which influences Wall Street financial markets and generates more drama in a seemingly endless feedback loop of news generating market movements that generate even more news. This unfortunate ongoing drama trend sometimes stampedes investors into making decisions based on media-exaggerated and inaccurate reporting.

Fortunately, credible analysis of economic data is available from authoritative non-governmental sources—information that does genuinely affect economic policy-making and therefore, legitimately also affects global markets. One such respected authority is The Conference Board, a non-advocacy, not-for-profit organization that defines itself as “a global, independent business membership and research association working in the public interest…” The Conference Board’s Leading Economic Index® (LEI) is an example of the kind of information researchers rely on—a concise algorithm designed to crystallize mountains of data on past and present economic factors, which can, within limits, foretell future economic conditions. The LEI is a composite of a number of different metrics that, because they cover so many different economic factors, serve better as a credible predictor when integrated as a group rather than as isolated data points.

Since economics as a social science deals with unpredictable human behavior, it may be self-limiting—predictions about market movements affect market movements in a feedback loop. This is especially true when political ideology rather than historical empirical evidence guides monetary policy (Federal Reserve: maximum employment and stable prices) and fiscal policy (Congress: budget matters, including entitlement and social programs, defense spending, and tax policy). Even a factual ten-component, non-partisan LEI index cannot be expected to be a perfect soothsayer when the underlying variables are human hopes and fears that are driven by emotional politics, a drama-driven media, and an unpredictable Federal Reserve. What does the current LEI report say about our economic future as of March 18, 2021?

The LEI for the U.S. increased 0.2% in February to 110.5 (2016 = 100), following a 0.5% increase in January and a 0.4% increase in December.

“The U.S. LEI continued rising in February, suggesting economic growth should continue well into this year,” said Ataman Ozyildirim, senior director of Economic Research at The Conference Board. “Indeed, the acceleration of the vaccination campaign and a new round of large fiscal supports are not yet fully reflected in the LEI. With those developments, The Conference Board now expects the pace of growth to improve even further this year, with the U.S. economy expanding by 5.5% in 2021.” Copyright © Mark Wendell 2021. All rights reserved.