Chart of the week
Following April’s heavy disappointment when the US economy created only 278,000 new jobs rather than the million expected by analysts, May’s data came in much closer to consensus at 559,000 versus expectations of 674,000. Amid a recovery driven by the easing of Covid-19 restrictions, forecasting has become far more complex than ever before. As a result, the amount of variation in forecasts has considerably increased.
The chart below measures the standard deviation of the 80–90 US job creation forecasts that make up Bloomberg’s monthly consensus. The figure has historically hovered around 25,000, which means that two-thirds of the forecasts fall within 25,000 (plus or minus) of the average forecast. In 2009–2010, the recession and scale of recovery caused uncertainties that increased this variation to 50,000. In spring 2020, the variation reached millions, which was clearly exceptional. Today, wide variations in forecasts indicate that uncertainty remains high and standard deviation in the last two to three months has exceeded 150,000, which is almost six times the usual figure.
This greater uncertainty reflects the unprecedented times we are living in. Some of the classic relationships between economic indicators no longer seem to hold true and monthly economic data can surprise to the upside or downside without calling the overall scenario into question. Against this backdrop, it will probably be difficult to get a clear idea of the scale of the growth recovery. The situation calls for a heavy dose of caution in the delicate art of forecasting and pragmatism in that of portfolio management.
The following opinion was written on June 10th 2021 and is susceptible of changing.
Sources :Bloomberg and Lazard Frères Gestion, June 10th 2021
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