In just six weeks of 2023, economic forecasters have hurriedly revised away this year’s long-assumed recessions in euro zone and the United States – confounded as they were by a mix of warm weather in Europe and EvdEn eve nAKliyat<\/a> some wild U.S.jobs market revisions and statistical quirks that have dramatically reshaped the interest rate outlook stateside.<\/p>\n Throw in China’s unexpectedly swift removal of “zero COVID” restrictions and already 2023’s global picture looks radically different than it did only in December – never mind the previous January before the Ukraine invasion redrew inflation, interest rate and investment maps for everyone last year.<\/p>\n Bearing in mind the United States, China and euro zone together account for well over half the annual $101 trillion of global output, that’s some collective moving target.<\/p>\n Wall Street giant Goldman Sachs – often a market mover with its big macro calls – is a good example.Last month it revised away forecasts for a euro zone contraction this year and this week cut its chances of a U.S. recession in 2023 to just one-in-four from one-in-three previously.<\/p>\n Yet as recently as mid-December, forecasts from Bank of America, Barclays and EvDeN eve NAkliYAt<\/a> BNP Paribas were also plumping for a full-year contraction of U.S.gross domestic product this year.<\/p>\n Last month’s Bank of America survey of fund managers around the world still had net 68% expecting recession this year.<\/p>\n But no one’s quite sure all of a sudden – and so much for so-called ‘leading indicators’ like the historically inverted U.S.Treasury yield curve – traditionally a sure fire predictor of downturns ahead.<\/p>\n Last Friday’s red hot January employment report is forcing hurried rethinks everywhere. Treasury Secretary Janet Yellen stated baldly that the lowest jobless rate since 1969 is simply inconsistent with recession this year and Federal Reserve policymakers are already turning even more hawkish on the rate outlook.<\/p>\n Rates markets reared up to price Fed rates back above 5% and now expect them higher at yearend than they are today.Stocks swooned again and currency strategists, such as the team at Morgan Stanley, switched negative views on the U.S. dollar worldwide to neutral all of a sudden.<\/p>\n If that wasn’t enough whiplash, Fed Chair Jerome Powell chimed with his colleagues on more that needs to be done to tackle inflation – but also laced his comments with expectations of a cooling jobs market and opined on the difficulties predicting this cycle.<\/p>\n In other words, if your outlook hinges on getting a recession call right or nailing the timing of peak interest rates, be prepared to shift it now from week to week.<\/p>\n HOARDING AND FOMO<\/p>\n What’s the big deal?As famed British economist John Maynard Keynes is often quoted as saying: “When my information changes, I alter my conclusions.”<\/p>\n But the problem may indeed be the “information.”<\/p>\n To be sure, the dance around the “R word” is a little artificial.Rigid technical definitions involving consecutive quarters of contraction may mean changes are only the difference of a couple of tenths of GDP either way, the sort of margin easily revised away down the pike anyway.<\/p>\n A bigger issue is whether monthly data can be trusted for steer on the business cycle you’re trying to second guess.<\/p>\n High-frequency economic numbers were bamboozled by the pandemic’s economic shutdowns and reboot worldwide – with distortions still lingering on everything from supply chains to labour force participation, savings, consumption and policy rescues.<\/p>\n The energy shock around Ukraine merely compounded that by amplifying an outsize inflationary twist and household squeeze while jamming some supply chains even more.<\/p>\n Monthly economic updates now require significant health warnings and assumptions of “normalisation” may have been premature.<\/p>\n Although not inconsistent with other tight labour<\/a> market soundings, the U.S.January jobs report was riddled with revisions, eVden EVe naKliyaT<\/a> remodelling and seasonal adjustments.<\/p>\n While that may not change your view of employment today, reasonable concern about labour hoarding and lags between announcements of company layoffs and data surveys mean it’s hard to rely on it solely for a change of course the way many in markets seem to have done since Friday.<\/p>\n
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