I expect a downward revision tomorrow for today’s value, but tomorrow’s value?
Thinking about Macro Data and Revisions and Recessions: A Cautionary Tale
Indications are that a week from tomorrow, we will receive a very strong report on GDP growth (Jim will have his recession probabilities assessment soon after the release). (GS at 4.1%, MacroAdv at 5.0%, NY Fed at 2.8%, FRB Atlanta NowGDP at 4.5%.) At the same time, we are seeing a flattening of the yield curve. I urge observers to not take as “hard data” the advance release of any macro data as firm. Here is a cautionary tale.
Return of the Log (Function)
Ed Hanson writes, after plotting the data:
The graph shows, in general, Minnesota’s increasing gap of per capita income over Wisconsin since at least 1970. It is not just since 2011 that this trend began.
This observation is right in a way — wrong in a deeper, more economically interesting, way. Investigation highlights the usefulness of the log function.
Per Capita GDP in MN, WI over 30 Years
Reader Ed Hanson accuses me of misleading people about the growth rate of per capita income in Minnesota and Wisconsin, by omitting results on trends in long samples, and focussing on short samples. Personally, I don’t recall plotting per capita income, but rather per capita income (which differs from GDP), but here for the interested reader is a graph of the relevant data, for the longest span readily available.
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The Ten year-Seven Year Treasury Spread
Some see this as inversion imminent.
Term Spreads as of Noon Today
Trending down.
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World Economic Outlook Update: On Trade Policy Risks
From Maury Obstfeld, IMF, Chief Economist, today:
…the risk that current trade tensions escalate further—with adverse effects on confidence, asset prices, and investment—is the greatest near-term threat to global growth. Global current account imbalances are set to widen owing to the United States’ relatively high demand growth, possibly exacerbating frictions. The United States has initiated trade actions affecting a broad group of countries, and faces retaliation or retaliatory threats from China, the European Union, its NAFTA partners, and Japan, among others. Our modeling suggests that if current trade policy threats are realized and business confidence falls as a result, global output could be about 0.5 percent below current projections by 2020. As the focus of global retaliation, the United States finds a relatively high share of its exports taxed in global markets in such a broader trade conflict, and it is therefore especially vulnerable.
Trumpist Economic Discourse…and the Provision of a “Cliff’s Notes” Version
On reading my admonition to consult my paper with Oli Coibion, reader Ed Hanson writes:
Do you really have a problem explaining to those who can not follow your paper? I hope you do not teach undergraduate beginning economic courses. Unless. of course, your intention is to decrease economic understanding in the world. But then again, I suspect that exactly what you want, because only the economic illiterate and the power elite could support socialism.
Interpreting Evidence on Forecasting Capabilities of Futures Relative to Other Methods
Despite provision of numerous references, reader CoRev writes:
… it’s a big IF that soybeans futures are LONG TERM predictors at all.
I find skepticism of forecasting capabilities usually justified. However, when that skepticism is not supported by any citations, I consider such skepticism self-serving. Hence, I am going to go step-by-step for those who are not familiar with econometric methods and assessment metrics, in the hopes of educating people about the challenges of systematic prediction. Here I use as an example soybeans.
The Last Post on July 2018 Soybean Futures
Because they expire today! And at this time, barring transport costs, etc., the futures and spot prices should converge. At 814, they are down 22.4% from levels recorded in late May.
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