Another economic report, another disappointing number. Industrial production in January slumped 0.3% from the previous month, delivering the first negative monthly comparison since last July. This is the fourth major indicator in recent weeks that’s fallen short of expectations (the latest data on personal income, nonfarm payrolls, and retail sales suffered surprisingly weak monthly changes too). The harsh winter may be the cause, in which case we’ll soon see more encouraging updates.
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All forecasts are wrong, but some are useful, the mathematician George E. P. Box famously advised. But how can wrong forecasts be useful? One way is to use our best guesstimates as early warning sign of a major turning point in the trend. This is one of the more compelling reasons to generate forecasts. It’s a subtle point, and one that’s too easily overlooked in the rush to dismiss forecasts as garbage. In truth, you can learn a lot from flawed forecasts. I raise this point now because we’ve seen a run of disappointing economic updates in recent weeks (personal income, payrolls and retail sales). The value of analyzing flawed predictions may be unusually valuable these days.
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