Podcast Summary
Comparing Economic Forecasts to Reality: Economic forecasts can have significant discrepancies from actual outcomes, but analyzing trends and factors is essential for informed decision-making.
The accuracy of economic forecasts, even from experts, can vary greatly. On Planet Money Predictions, economists Diane Swank from Grant Thornton and Alfredo Romero from North Carolina A&T State University made predictions about home prices, jobs, and inflation for the remainder of 2021. Today, they returned to see how their forecasts stacked up against reality. Diane predicted an 8% increase in home prices, while the actual increase was 12.29%. Alfredo fared better in his predictions, but ultimately, the exercise served as a reminder that economic forecasting is an imperfect science. Despite the inaccuracies, understanding the underlying economic trends and factors is crucial for making informed decisions.
Surprising Economic Predictions by Alfredo and Diane: Although Alfredo's prediction of a 19% home price rise edged out Diane's, they both missed the mark for jobs and inflation. Unexpectedly high demand and supply chain disruptions caused a 7% inflation rate, highlighting the importance of considering both supply and demand factors.
The 2021 economic forecasting competition between Alfredo and Diane was a close call for some predictions, but a significant miss for others. Alfredo's prediction of a 19% rise in home prices edged out Diane, but both were surprised by the actual figure of 19%. For jobs, both forecasts were relatively close, with the actual number being significantly higher than predicted. However, the biggest surprise came in the inflation category, where Diane's prediction of 3.1% was closer to the actual blistering 7% than Alfredo's moderate 2.4% prediction. The unexpected inflation was due to a unique combination of high demand for goods and supply chain disruptions caused by the delta wave. Inflation, therefore, is not just about supply issues but also about demand, particularly the strong demand for goods in a booming job market.
Labor shortage continues despite record job openings: Despite a strong economy and numerous job openings, labor shortages persist due to reasons like childcare and health concerns, leading to wage increases for low-wage workers and ongoing inflation concerns.
Despite a record-breaking number of job openings and a booming economy, millions of workers have not returned to the labor force due to various reasons such as childcare issues and health concerns. This has led to a significant labor shortage, resulting in wage increases for low-wage and entry-level workers. However, the ongoing labor shortage and high inflation rates, particularly in sectors like energy and food, remain concerns for economists. Two prominent economists, Diane Swonk and Sung Won Son, have made opposing predictions about inflation for the rest of the year, with Swonk forecasting a cooling of inflation to 2.3%, and Son predicting a continued high inflation rate of 5.5%. The outcome will depend on various factors, including geopolitical events and the resolution of supply chain disruptions.
Economist Diane Swonk forecasts potential recession in 2023 due to Federal Reserve's interest rate hikes and inflation psychology: Economist Diane Swonk predicts a recession in 2023 due to the Federal Reserve's efforts to combat inflation, but some overlook the impact of inflation expectations and psychology on prices and wages.
Economist Diane Swonk is forecasting a potential recession in 2023 due to the Federal Reserve's efforts to combat inflation through raising interest rates. While some believe inflation will decrease this year, Swonk argues that inflation psychology and expectations, shaped by decades of low inflation, are being overlooked. Additionally, rising labor and production costs, as well as businesses' ability to pass these costs onto consumers, could contribute to a wage-price spiral and further inflation. Swonk's perspective, while plausible, is at odds with many other forecasters, highlighting the importance of considering inflation expectations and psychology in economic analysis.
People's inflation expectations influence inflation: Economist predictions suggest varying job growth, home price increases, and inflation expectations, which could impact economic trends
Inflation, to a large extent, is influenced by people's expectations. When people anticipate low inflation, they are less likely to demand higher wages or pay more for goods, keeping inflation in check. However, if expectations shift and people start anticipating higher inflation, it can become a self-fulfilling prophecy. In this context, economist Song He is forecasting a change in inflation expectations, which could lead to higher inflation. Additionally, Song predicts a 12% rise in home prices, while Diane predicts 8%. Regarding job growth, Diane forecasts an addition of 200,000 jobs per month, and Song predicts 350,000. We'll find out who is closer to the mark next time on Planet Money. If you'd like to share your predictions for future stories, email planetmoney@npr.org or follow us on social media at Planet Money. Today's show was produced by Nick Fountain and Sam Yellowhorse-Kessler, edited by Jess Chang, and executive produced by Alex Goldmark. For those missing Jacob Goldstein's voice, tune in to his new show, "What's Your Problem?" on NPR, where he explores the challenges smart people are tackling in technology and business. I'm Mary Childs, and this is NPR. Thanks for listening.
