³ÉÈË¿ìÊÖ

Perhaps to ask New Yorkers only is a little simplistic as a lot of the hardship seems to be stemming from other areas of the US at present.

Evan,

As always, a fantastic piece. The Today programme's gain will be our (that is, fans of good economic analysis) loss...

Forecasting is, as it were, a social act - it isn't just a numbers thing. Of course you want, as a forecaster, to made a prediction that clusters near to that of other professional forecasters (we get around this in the UK by having so many members of the macroforecasting community developing models based on the HMT one, or by grouping together through, for example, the ITEM Club to poll forecasts!) There are good reasons for that - embarassment for one, and in the City bonuses on the other! You may remember some years ago that Chris Huhne (yes, him) used to publish an annual survey of the best and worst forecasts in the FT; it was always surprising to me that there was much forecast variation at all.

I have always wondered what would happen if you took a standard, vanilla, model of a fictitious economy and gave it to, say, five forecasters and asked them to produce a central forecast for year-on-year GDP growth WITHOUT any communication between them and 'news discussion' in the background (locking them in separate rooms would help!) After their nervousness had expressed itself in endless questions about the data, my guess is that, when pushed, their central forecasts would diverge by MORE than they do in the 'real world'. That's because so many of the shared assumptions in forecast models come from the open sources of news, comment and 'opinion'.

I used to work in forecasting many years ago, and am relieved to see that not much has changed. Forecasting remains a deeply social, even community, thing.

I think that there may be a slight tendency to put on a brave face when ask questions by a clearly-foreign journalist, though. People often grumble more about things at home, with their guard down, even when they don't want others: their neighbours, competitors... to feel sorry for them or look down on them... A slight tendency, but I think it may be an ingredient.

Oh come on. There are plenty of forecasters predicting a recession - for example Nouriel Roubini. The FT is going on about comparisons to 1973 or 1929. Most people now think recession is inevitable. LIBOR is heading up to August levels. There are $100s of CDOs still to be written off.

What was the point of this blog piece exactly? Unbelievable.

Actually it doesn't need to be caused by anchoring - it could just be people betting that the future will be pretty much the same as the past. For the vast majority of world history this has been a good strategy.

By contrast you could be accused of making predictions based on the value of notoriety (very useful for a journo). As a physicist put it 'I say that I don't believe in the Higgs Boson because that way people will remember me if I'm right...'

Can anyone remember a major US war that was not followed by a big round of inflation? The trouble with holding a trillion dollars of US debt the way China does is that if you do anything to start dumping it, you drive its value down hard so that most of what's left of it that you still hold becomes worth far less, you cut off you nose to spite your face. The US has China by the Yin-Yangs. The idea is that the US will not make immediate economic sacrifices to pay for expensive wars like Iraq so the government goes into major deficit financing mode borrowing from the future to pay for the present by issuing lots and lots of bonds. The bonds can't default, the government can print as much money as it has to to cover them which is why people buy them. Lenders know they will get at least something back. It's still the safest bet on earth because if the US government were to fail, the rest of the world's economy would be dust and everything else would be worthless too. Pay off expensive debt incurred now with cheap dollars later. A presidential election year is invariably a good one for the economy and the stock market and 2008 should be no different. But by 2009 or 2010, the currency should start to deflate in a major way. Further deficit financing to meet military and other security needs will grow while the Democrats will be pressured to impliment the increases in social programs they promised to win the 2008 elections. There will be major dislocations and panics in financial markets around the world. China's banking system is very vulnerable. A sharp drop in exports to the US could bring China's bubble stockmarket crashing down and create a lot of bad debt and bankrupcies in China. Europe is hardly immune. The sub prime mortgage fiasco is just a taste of what is to come. Exports to the US will all but dry up. Airbus will likely go out of business with its insane business model, its incompetent management, its junk engineering, and committment to a life or death product not nearly enough people want to buy and it can't build. Even sales of luxury European cars to the US may dry up for awhile. Will Ford and GM survive? Can't say but a weak US dollar might help nurse them along giving them breathing space to give them more time to get their act together anyhow. It depends on whether or not their execs give up their hubris, not likely they will though, they never have so far. Oil and gas will continue to rise on the world market until it collapses. One US analyst said the sooner we get to $150 a barrel for oil, the sooner we get to $20 a barrel for oil. The coming crash in the US dollar will probably trigger a worldwide recession. It's just a taste of what Kyoto and son of Kyoto would bring if the US actually bought into it and tried to comply. If Democrats win Congress the US just might be that stupid. When all the dust settles, guess who will be back on top again. It always is. Anyway, that's my forecast.

Evan,

We will learn the real situation once the 'glitz' of Xmas and New Year are over on both sides of the Atlantic.

I was glad to see you touch upon the fact that housing forecasters are tied to the industry, as this has been bothering me for quite some time. Why is it that all news outlets (including the usually fairly objective ³ÉÈË¿ìÊÖ) quote forecasts made by organisations with a vested interest in maintaining a booming market as though they were the objective truth? Mortgage lenders and estate agents are hardly likely to advise people that the market is hugely over-valued and that people would be mad to buy now. I'm absolutely convinced that a large contributing factor to the ridiculous state of UK prices is the steady flow of (mis)information from these interested parties...that and the fact that 50% of daytime TV output seems to revolve around people telling you to buy buy buy. I wonder how long it will be before the property development programs are replaced by shows which demonstrate how best to keep the bailiffs out?

I also think one of the reasons the US economy is probably headed downwards is the current geopolitical dynamics - no one is watching the store at a crucial point in time ! We're in an election year cycle that is so never ending that the population has largely tuned out and more amazingly the candidates don't see the economy as the issue or one of the major issues ! Having said that this country has been saved so many times during the last 8 years that people are probably feeling a tad invulnerable at this point. Rest assured we're going down and it will not be the soft landing - too many shocks ready to hit us - high oil, high debt and a consumer economy that continues to purchase items that add little benefit to American workers.

If you are interested in this sort of thing you may enjoy this speech by Charlie Munger entitled 24 Standard Causes of Human Misjudgement. Charlie is Warren Buffett's right hand man if you didn't know already.

The whole world is watching how US economy is going to work it's way out of this rut. We in emerging markets are finding our stock investments growing due to funds from US. We are to believe that "one man's bread is another man's poison"

Despite the statistics the government likes to throw around, the truth is, the economy has been in continual decline since 9/11, and it will continue to decline in the new year.

All of America's strength has been lost to the Chinese manufacturing prices. America no longer makes anything. You can shop in the US all day, and never find a "Made in America" label on anything.

Every major American manufacturing label has moved ALL of their manufacturing to China....or to Maylasia, or the Phillipines, or somewhere else off shore.

The goods coming in, however, are NOT what Americans are used to buying, and one of the reasons the retail sector is rapidly declining, is the quality of goods is so bad, that Americans no longer are interested in them.

Unless American based companies see the need to return to the country, with their manufacturing, you can expect the economy in America to continue the current decline, which will precipitate yet another real estate crisis, due to empty commercial retail properties. As I speak, properties are emptying out, everywhere. Entire companies are going out of business.

Retailers have lost touch with the consumer, and now the consumer is forced to go on line with more than 1/2 of their purchases, because they can't find what they want in traditional retail stores. (I just did another one yesterday, after shopping retail stores.)

I'm afraid your optimism is misplaced.

Just suppose they had a recession and nobody came?

#1 I agree...

However, the Americans are eternally optimistic and opportunistic and they constantly invest in new technologies. So there's always something new going on which in turns keeps people interested, provides opportunities to their young people, inspiration for engineers, scientists etc..

Here... the opposite is true.

Very interesting:

Of course, with recovery tied to consumer debt and confidence, and saving versus spending, optimism is a very useful response as it is something of a self-fulfilling prophecy...

...but hey, maybe 'it's different this time'.

I agree with Ed above. The part of New York that you are in is really just Manhatten and that is not where the pain is being felt.

Where the pain is really being felt is in all of those Inland States where there is no efective Interstate Cost Effective Public Transport System or nearby Sea Port.

It is Americas huge deficits as a proportion of GDP that matters along with their poor quality Electricity distribution system and a huge reliance on oil based transport that is the problem.

Evan - Go South Young man.

It is these things that have increased Americas Inflation Rate and brought about higher interest rates. This in turn put huge sectors of the America's poorest out of work, caused them to default on their badly sold mortgages created the Credit Crunch and brought about a Propery Price Collapse.

A lot of people are saying that the same will happen to the UK and Europe. However they are wrong because the UK and Europe are spending huge sums on their infrastruture, whereas Amercia is not.

Instead of trying to compete with India and China, America needs an infrastructure rebuilding plan at Federal Level aimed at drastically reducing its Carbon Emissions to get them out of this mess.

For if they can successfully do this, then they will be able to compete in this rapidly changing world and have new and exciting products to sell to China, India and the rest.

After all when you have outgrown your existing warehouse. You rebuild or buy a new one.

America can do it - It just needs the political will to stop blaiming China and get on with the Job.

Industries die and industries are born. America should stop looking to the past and plan effectively for the future. Only then will they get out of the Catch 22 state of decline that they are in.

Just investing in Bio-Fuels to eek out america's oil consumption is not the answer!!!!

Where the pain is really being felt is in all of those Inland States where there is no effective Interstate Cost Effective Public Transport System or nearby Sea Port.

It is America’s huge deficits as a proportion of GDP that matters along with their poor quality Electricity distribution system and a huge reliance on oil-based transport that is the problem.

Evan - Go South Young man.

It is these things that have increased Americas Inflation Rate and brought about higher interest rates. This in turn put huge sectors of the America's poorest out of work, caused them to default on their badly sold mortgages created the Credit Crunch and brought about a Property Price Collapse.

A lot of people are saying that the same will happen to the UK and Europe. However they are wrong because the UK and Europe are spending huge sums on their infrastructure, whereas America is not.

Instead of trying to compete with India and China, America needs an infrastructure-rebuilding plan at Federal Level aimed at drastically reducing its Carbon Emissions to get them out of this mess.

For if they can successfully do this, then they will be able to compete in this rapidly changing world and have new and exciting products to sell to China, India and the rest.

After all when you have outgrown your existing warehouse. You rebuild or buy a new one.

America can do it - It just needs the political will to stop blaming China and get on with the Job.

Industries die and industries are born. America should stop looking to the past and plan effectively for the future. Only then will they get out of the Catch 22 state of decline that they are in.

Just investing in Bio-Fuels to eek out America's oil consumption is not the answer!!!!

The probability of the U.S economy heading into a recession is highly unlikely, however for economists to be so optimistic is incongruous. I personally believe growth rates will float around 2% up until at least November of 2008.

The probability of the U.S economy heading into a recession is highly unlikely, however for economists to be so optimistic is incongruous. I personally believe growth rates will float around 2% up until at least November of 2008.

The probability of the U.S economy heading into a recession is highly unlikely, however for economists to be so optimistic is incongruous. I personally believe growth rates will float around 2% up until at least November of 2008.

Wasn't the consensus befopre bothe rthe 1929 stock crash and the bursting of the dotcom equally as saguine - that it wouldn't be bad, that it was just a hiccup and that normal service would be resuimed sooner rather than later. Oddly, one reaosn why I am pessimistic has nothing to do with the stock markets and the economy: in seevral weeks, Kosovo seems likely to declare UDI. And in severla months Putin is due to relinquish the presidency, but is unlikely do give up power. And in 2008 Bush is on his way out, cannot stand again (this isn't Russia) and is thus a lot freer to do what he likes. Why do I think - fear - that the Balkans is about to become the proxy battleground between 'the West' and Russia? And why do I think that this will coincide with a horrible downturn in western economies, leading - with the average horuhold debt in Britain standing at £33,000 - to a pretty miserable time for us all? These forecasters aren't so much anchoring as diggig their heads as far down into the sand as they will go.

Where the pain is really being felt is in all of those Inland States where there is no effective Interstate Cost Effective Public Transport System or nearby Sea Port.

It is America’s huge deficits as a proportion of GDP that matters along with their poor quality Electricity distribution system and a huge reliance on oil-based transport that is the problem.

Evan - Go South Young man.

It is these things that have increased Americas Inflation Rate and brought about higher interest rates. This in turn put huge sectors of the America's poorest out of work, caused them to default on their badly sold mortgages created the Credit Crunch and brought about a Property Price Collapse.

A lot of people are saying that the same will happen to the UK and Europe. However they are wrong because the UK and Europe are spending huge sums on their infrastructure, whereas America is not.

Instead of trying to compete with India and China, America needs an infrastructure-rebuilding plan at Federal Level aimed at drastically reducing its Carbon Emissions to get them out of this mess.

For if they can successfully do this, then they will be able to compete in this rapidly changing world and have new and exciting products to sell to China, India and the rest.

After all when you have outgrown your existing warehouse. You rebuild or buy a new one.

America can do it - It just needs the political will to stop blaming China and get on with the Job.

Industries die and industries are born. America should stop looking to the past and plan effectively for the future. Only then will they get out of the Catch 22 state of decline that they are in.

Just investing in Bio-Fuels to eek out America's oil consumption is not the answer!!!!

I sure hope they are right, but I doubt it in real terms not dollor terms, at least. There are several reasons for this.

Firstly, the commodities the U.S. must import, oil, minerals, etc. as ther are either no or insufficient levels of domestic production

Secondly the increasing reluctance of producer countries to accept payment in dollars. The world is awash with dollars that nobody want to buy.

Thirdly, by this time next year, if not sooner, the increase in the cost of all imports will be felt in the domestic dollar price, as already being experience with oil and gas.

Fouthly. falling revenues that Federal and State levels where there are already very high deficits are likely to force either cuts in programmes or increased taxes or both.

Americans tend to be ignorant of many things. Take the decline of the dollar: everthing in the United States (home values, wages, stocks, etc.) has lost %50 of its value compared to the Euro Zone in five years due to currency devaluation, and yet it worries very few people.

John F. Kennedy published "Why England Slept" in 1940--some young man in China is probably musing the same notions about the USA these days.

How on earth are Americans upbeat about the economy? Almost nobody is - unless you believe what you read in the news, government reports, and Wall Street (all of which have an interest in promoting upbeat news). America has a unique way of dealing with information and PR, and you have to be attuned to it to correctly analyze what's really going on. There are a lot of blogs out there dedicated to dissecting the bizarre statistical and psychological games at play here.

In reality, people are worried as hell about the economy. Maybe not in prime Manhattan where most people won't be affected by it either way, but in the rest of the country.

Evan

Are you in the US on business or on a shopping spree? These articles (man on the street mood, Brits in the shops etc) about the US have a whiff of the holiday as business being expensed!

Have you any plans to speak to Nouriel Rubini from rgemonitor.com? He is a major bear, and a source of insight into the US psyche...

sorry - that should be Nouriel Roubini...

Americans are optimists at heart and think there is no problem we can't solve. I am not surprised that the forecasts might be biased in that direction.

i am optimistic, hopeful even, that the economy will go down and allow us all a few more habitable years on earth.

I'm in Mountain View, California, a.k.a. part of "Silicon Valley," where the last economic bubble burst, creating a great deal of havoc -- as far as anyone having anything to with computer technology was concerned. However there were many people not at all affected by that bubble or its collapse, and it seems likely a similar scenario will play out for the mortgage bubble. Economically not everyone is being hit, which may be doubly tragic for those who are -- because so many others will not understand their plight. Similarly there are many civilians who do not understand what Iraq war veterans are going through, many Northerners who do not understand the extent of drought in the Southeast, and many people not from Louisiana who believe that effects from Katrina are well in the past.

Somehow we've all gotten out of synch with each other. This, as much as anything else, is what needs to be corrected, or the will to fix our nation's problems will be lost.

I generally agree with the analysts, overall the US economy isn't that bad. It seems like a lot of people forget how low both unemployment and inflation still are, which in my opinion are the two biggest indicators along with GDP growth.

Anchoring? I understand the concept that you are trying to get across however I entirely disagree with your conclusion. The Americans you talked to have a optimistic outlook for one reason only; we hate to loose. We are a highly competitive people and we will adapt to the changes that are out there or in the words of my revolutionary ancestors "die trying".
Already you are seeing a tread of Americans exporting more and importing less. This trend will continue to grow so long as the dollar continues to fall in value. Furthermore you will see European exports shrink world wide drastically over the next few years. Europeans better get used to this fact so long as the Yuan is not freely floated. At this point if the Pound sterling and or the Euro fall in value you will find the dollar falling in value even more sharply. All thanks to our lovely friends in Red China.

As one of the shoppers out and about on Black Friday, it seemed people were buying. That was supported by news that there was a significant increase in sales over last year. A good start for retailers that make most of their money during the holiday season, both in stores and online.

US professional economists or lay persons are increasingly reluctant to forecast a recession on the basis that, of the past 50 recessions forecast, only about two have materialised. Since the 1980s, economic management through the Federal Reserve System has advanced technically and scientifically and there are many reasons why recessions do not occur as in the past. It is possible that US interest rates will be radically reduced in coming months.

Dr Grant Ledgerwood
Maidstone UK