What is mona lisa doing? At first glance, the subject of the world’s most famous painting appears to be smiling. On another look, her smile faded away. When it does appear again, it’s another smile. Leonardo da Vinci achieved this ambiguous effect by using Smudged, he blurred the lines on Mona Lisa’s face. No matter how many times you watch it, you’re never quite sure what’s going on.
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The post-pandemic economy is like the Mona Lisa. Every time you look, you see something different. Following the banking turmoil, many analysts now believe the world economy is headed for a “hard landing” recession. Few seem to be anticipating a “no landing” scenario, in which the economy isn’t plagued by rising interest rates — a view that was popular just a few weeks ago and which itself superseded the prevailing view that a mild recession was certain late last year.
In short: Prediction has never been more difficult.Over the past year, analysts’ expectations for the US quarterly report range gross domestic product The growth rate is double that of 2019. The word “uncertainty” occurs more than 60 times International Monetary FundThe latest global economic outlook, roughly double that for April 2022 and October 2022. When the banking panic hits, nobody has the slightest idea what the Fed will do with rates in March – some investors expect a hike, some no change, some cuts – the next few meetings look to be the same not predictable. At the ECB’s most recent monetary policy meeting last month, its president, Christine Lagarde, was outspoken about the role of her institution. “It is not possible to determine in time what the path forward will be,” she said.
Official statisticians are struggling to make sense of the picture.As a matter of course they update their estimates for everything gross domestic product Employment has changed as more data has become available. But something profound has changed. gross domestic product The correction in the euro zone was four times larger than normal. In March, the ONS released some major revisions. The release showed that actual business investment was in line with pre-pandemic levels and not as low as 8% as was once thought. Last month Australian statisticians more than halved their estimates for productivity growth in the third quarter of 2022. That year the U.S. Bureau of Labor Statistics (bls) revised its estimate of nonfarm payrolls (not adjusted for seasonality) to 59,000 a month between the first and third estimates, compared with 40,000 in 2019.
what is going on? Maybe the world is just more turbulent. Over the past year, Europe has seen its worst war in seven decades, supply chain disruptions, an energy crisis and a banking panic. Other rich countries have stabilized only slightly.
However, there are deeper changes at play. The first is related to the covid-19 disruption. As lockdowns came and went, the world went from collapse to soaring growth. This wreaks havoc on the “seasonal adjustment” common to most economic data.february bls Changed the factor it applies to inflation, making it more difficult to interpret the monthly rate. Annualized core inflation in the final quarter of 2022 “rises” from 3.1% to 4.3%. Understanding eurozone inflation is also harder than usual. Kamil Kovar of Moody’s Analytics, a consultancy, noted that core monthly inflation was as low as 0.2% or as high as 0.4% in March, depending on how it is seasonally adjusted.
The second change has to do with sample size. The pandemic has accelerated a trend of increasing numbers of people failing to respond to official inquiries. In the U.S., the response rate to surveys used to estimate job vacancies has dropped from nearly 60% before the pandemic to around 30%. When covid hit, the response rate to the UK labor force survey dropped by around half. During the lockdown, some businesses closed. People got out of the habit of filling out questionnaires. Distrust of government may also increase, making people reluctant to help statisticians.
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Declining response rates can increase data volatility. They can also lead to bias. Those who stopped responding to the survey appeared to be less well off than those who continued to do so, misleadingly inflating income. After making appropriate corrections for non-responses, real median U.S. household income growth from 2019 to 2020 was 4.1%, not the 6.8% originally reported, said Jonathan Rothbaum of the Census Bureau. The non-response continues to drive revenue statistics up about 2% since 2020. A report by Omair Sharif of consultancy Inflation Insights suggested that correcting for the “nonresponse bias” may have also contributed to the sharp revision in recent U.S. earnings data.
A third source of confusion is the difference between “hard” and “soft” data — objective indicators such as the unemployment rate and subjective indicators such as people’s future expectations. Often the two types move in sync. Now they are far apart. “Soft” measures look recessionary. “Hard” measures point to decent expansion. This divergence may reflect dissatisfaction with inflation. Prices in developed countries are still up 9% year-on-year.
Investors and statisticians will gain a better understanding of the world economy in times of volatility and inflation. As the impact of the pandemic fades, so will the seasonally adjusted distortion. Economists have made progress in incorporating alternative data into forecasts, helping to overcome the decline in response. But that’s not comforting for governments and businesses that need to make immediate decisions, or for people who just want to keep up with the news.Don’t be surprised if the global economy holds steady sfumata it’s been a while. ■
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