Economists Struggle to Forecast U.S. Recovery With Huge Misses

The reopening of the U.S. economy is throwing forecasters for a loop.

Estimates for two of the most widely followed economic reports this month -- the consumer price index and the jobs report -- have missed the actual figures by a long shot. April payrolls, reported last week, were more than 730,000 short of the median estimate in a Bloomberg survey. On Wednesday, government data showed the headline increase in the CPI was roughly quadruple the consensus forecast.

Economists Struggle to Forecast U.S. Recovery With Huge Misses

The unprecedented nature of the pandemic has made forecasting difficult for economists. The recent employment surprise was the biggest downside miss, while the price index was the biggest upside miss in records dating back to 1996, according to data compiled by Bloomberg. It’s not the first time during Covid-19 this has happened: Economists also struggled to accurately forecast a sudden improvement in employment data last year, for example.

Economists Struggle to Forecast U.S. Recovery With Huge Misses

Economists say their models aren’t designed to incorporate massive shifts like those stemming from businesses rapidly reopening or supply chain constraints. High-frequency data and anecdotal evidence provide additional insight but it’s not an exact science.

“Economic models are awful at predicting turning points,” said Michael Gapen, chief U.S. economist at Barclays Plc. “They’re great at picking the trend, and the pandemic is a series of turning points.”

There are also not a lot of periods in history to compare to the pandemic. The business cycle that most closely resembles the current moment is World War II when there were massive shortages in some goods and people were restrained from buying certain items, Gapen said.

Models also can’t predict things like the global semiconductor shortage or sudden surge in demand for travel, which result in huge short-term price swings, said Jennifer Lee, senior economist at BMO Captial Markets. Used cars and trucks, airfares and hotel costs surged by the most on record in April, according to the Labor Department’s report.

“All these things are piling up and it makes the month-to-month moves more volatile,” Lee said.

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