With Danielle Marceau, Senior Economist with Prevedere
If you’re going to the beach and you want to know if it’s going to be sunshine or storm clouds, you could check grandma’s arthritic knees, pick up a divining rod, or maybe call Al Roker. When it comes to forecasting the economy, however, you’ll want a more scientific approach.
Danielle Marceau is a senior economist at Prevedere, where economic growth is predicted by identifying leading indicators and coming up with algorithms that have produced results with more than 85% accuracy. Prevedere defines their method as a “statistical combination of multiple leading macroeconomic trends, creating a single line representing the future momentum of the industry.”
Danielle says that the Federal Reserve, in contrast to the philosophy behind Prevedere, uses a reactionary method to measure economic growth, one based on the current state of the economy and not necessarily on looking into the future. An example of the disparity between the two systems concerns the employment numbers that just came out in May. The Fed had predicted the number of jobs added to be around 160,000, when, in reality, they came in at 38,000. Prevedere had actually predicted a lower number of new jobs based on their indicators, which included, for instance, the fact that corporate profits, small business confidence, and industrial production were all calling for weaker jobs growth.
It’s important to note, Danielle points out, that in spite of the slow growth we’re currently experiencing, we’re not looking at a contraction, a pulling back, but instead a period of deceleration, a softness in the economy.
Even factoring in for the uncertainty caused by Brexit, none of the leading indicators are foreshadowing an imminent recession in the US because of Great Britain’s divorce proceedings from the European Union.
This optimism is partly due to Prevedere’s industry outlook scores, health scores, as it were, that measure the health of certain industries trending in a positive direction, which they refer to as B to C industries—business to consumer—which include healthcare, technology, retail packaged goods, and the auto industry, all consumer-end focused industries which have scored positively. Based on their data, the US economy doesn’t seem to be particularly vulnerable to the global fallout incurred by Brexit.
Brexit, however, has undoubtedly rattled the stability of the world economy and volatility will probably be with us for the foreseeable future. According to Prevedere’s calculations, the economic forecast may not promise all blue skies and sunshine, but neither does it point to stormy weather.
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Steve Pomeranz: There's a lot of talk these days about the fact that the Fed keeps predicting or keep making bad predictions about the US economy as they try to adjust interest rates to either speed up or slow down economic growth. My guest, Danielle Marceau, is a senior economist at Prevedere. She's an expert of forecasting growth and the growth and contraction of the US economy. And their algorithm, so they write, has produced results with more than 85% accuracy. So that truly interested me, and I wanted to get to talk to her. Welcome to the show, Danielle.
Danielle Marceau: Thanks, Steve. Thanks for having me.
Steve Pomeranz: Those of us who follow policy making from the Federal Reserve, and I know you do as well, have noticed that they've talked about raising interest rates quite often, and they only really were able to raise them once, and they keep modifying their predictions on growth. What's going on there?
Danielle Marceau: Yes, I believe and what I've seen is that, really, they missed their opportunity to get the raise in that they had expected or wanted to get in.