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Making Predictions

Can anyone predict the future? Weatherpeople are routinely called on to tell us more than just what happened today- they are supposed to say if it’s going to rain and what temperature we can expect. Sportscasters have moved beyond a blank reporting of the Vegas line, say the Dolphins +4, and are expected to put themselves on the line with a solid call every week.

Not economic reporters. When there’s a lot of money on the line no one is willing to stick their neck out and tell you just what will happen tomorrow. That’s especially strange when you realize that a free market economy is all about balancing risk and reward, which is to say at some point boiling it all down to a solid prediction as to how likely an investment is to come in versus the possible gain from it. Business and economic reporters usually get a pass that the weather and sports people must only dream about. But that’s ridiculous.

Barataria is all about making a prediction and standing by it. Let’s refine that model a bit.

Mine doesn't glow like this.  It's a base model.

Mine doesn’t glow like this. It’s a base model.

Weather forecasters do make a solid single-number prediction on the temperature as far as ten days in advance, but for rain it’s always a bit fudgier. That comes as a “chance of precipitation”, a percent. No one really knows what that means so there’s a lot of slop implied by it. It’s not a bad model for economic predictions, which always depend on so many things. It seems reasonable to hold business reporters to about that standard.

Sports reporting often takes a different tack. They’ll go into details as to what to look for in the game, at least early on. “If the Dolphins passing game is hot, they will be able to score and keep even.” They still have to boil it down to the pick, but their fudge comes in the form of the mechanics of the game itself – they can always say, “Yeah, the ‘Fins just didn’t have the accuracy they needed..” (they never do).

This is not business reporting.

This is not business reporting.

Why can’t business reporting be about the same? The biggest problem is that no one has ever insisted on it, and no media outlet has ever tried to distinguish themselves by being the first to make solid predictions. But you can do it, at least with the models of other reporting as a guide.

Most of this is bounded chaos. You can call an upper bound pretty easily, and a lower bound. Picking where it’s likely to fall between those may be difficult, but it can be fudged over with explanations like, “This needs to happen first.” It would still be useful information because it tells the reader about what can be expected and what to look for. It’s not perfectly predictive, but forward looking all the same.

This Wednesday, 30 July, the ADP Employment report is coming out. June 2014’s big surprise was a robust +281k jobs, a figure so strong no one believes it. Briefing.com has called their own prediction, +225k, a figure we can’t exactly explain. It’s a good number, however.

What we can say is that the average in 2014 and over the last 12 months is the same, +200k. Let’s call that the lower bound for practical purposes, given that we seem to have picked up quite a bit from last year’s +190k per month. No one really expects June’s +281k to repeat, so that represents a high end.ADP

The graph does seem to show a slight upward trend, meaning that the Briefing call of +225k is a reasonable, if safe one. It is about where the trendline would land you over the last year, and that’s likely not a coincidence. I’m gong to average the high and low and and call it +240k, meaning that there has been a step-change and the very low figure in January is just wrong.

However, I’m going to tell you that I want a range for this, +225k to +240k.

Can we make a prediction about economic news? I don’t see why we can’t give you some good boundaries, at the least, and a reasonable guess. It’s like predicting the weather. And I think we should start insisting on it and forcing a few really strong predictions from our business and economic reporters. Why not? Other sections of the paper have to do it!

3 thoughts on “Making Predictions

    • It’s a miss, and a pretty big one. I was calling higher than +225k, and we didn’t get that. It is in the range I gave, yes, and that is a good thing. But it’s still a miss.

  1. Yeah, I think you blew it. Mr Sunshine jumped the gun a bit. 🙂 Its OK you weren’t far off. But can we really make predictions? Or are you about as accurate as the weatherman? 🙂

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