Taking the economy’s temperature more for form than substance
With the holiday season behind us and new year ahead, it can only mean one thing. Time for the economy’s annual checkup. Economists and market analysts are pouring over annual reports, year-end financial statistics and a cornucopia of data to take the economy’s temperature.
Like the lab work and a battery of tests your primary care physician will order, the “experts” will take stock of the nation’s financial health with their own set of numbers and deliver their opinions regarding what the future may bring – emphasis on the word “may.”
But unlike the hard scientific data available to medical professionals, the social scientists evaluating the economy rely on theories and models to arrive at a diagnosis. And that is where things begin to get fuzzy.
Some analysts look at where the Dow Jones Industrial Average closes on Dec. 31 to make their pronouncements. Others study gross domestic product numbers or global trade statistics to make up their minds. With an ever-increasing amount of data to choose from, the prognosis for the economic future can vary widely.
So why the emphasis on forecasting? The answer to that question comes in several parts.
First, that is what economic analysts do at this time of year. what better time than year’s end to look back and wax poetic about the economy’s performance over the past 12 months.
There is also the motivation to provide a context for the mountain of data available on the stock market, global trade, interest rates and whatever else gets thrown in the mix. Providing a framework for what it all means is a good idea because with so many moving parts to the economy, it can be hard to keep track of everything.
Another reason for the cacophony of capitalism is rooted in that basic tenet of economics, the law of supply and demand. In this case, it is not about price, but production. With an audience eager for knowledge about where the economy is heading, the information void needs to be filled. But with so many voices clamoring for attention in a crowded mass media landscape, sometimes it just ends up being more noise.
The problem, of course, is this is all speculative. Most every economic forecast contains more than a few caveats, especially these days with a global pandemic. While the new year is a time of unbounded possibilities and promise, it is all a big unknown. Few forecasters were warning of the possibility of the major social, economic and medical disruptions of 2020 as 2019 came to a close. While the past nearly two years may seem more obvious with the benefit of hindsight, it’s also easier to pick the winning lottery numbers right after the drawing.
While it is inevitable – and to some extent probably even useful – to speculate about the health of the body economic this time of year, it is also useful to remember the warning investors on the prospectus, “past performance is not indicative of future results.”