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Out-Driving Our Headlights

April 10, 2020

Forecasting the economy in a rapidly developing situation, as in March, can be challenging. In this week's TrendsTalk, we discuss ITR's approach to the recent black swan events.

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Transcript by Rev

 

Connor Lokar:
All right. Hello everyone. I'm Connor Lokar. Thanks for joining us for our latest ITR TrendsTalk.

Now, we survived a hectic and historic March and we've made it into April. At ITR, we spent essentially the second half of March in an all hands on deck mode, going through an exhaustive review of all of our forecasts in light of the Black Swan events of COVID-19, on profitable oil pricing, unprecedented state and local government intervention, the shelter at home orders, and the closings of businesses and associated layoffs as a result of all that.

Not surprisingly, these events have negatively affected the majority of our forecasts to varying degrees, but what made this such a stimulating but challenging exercise for our economist team at ITR is that we spent most of the month of March out driving our headlights, analytically speaking. For those of you not familiar, that phrase meaning a scenario where a driver's driving so quickly that the reaction time is inadequate to react to obstacles that emerge in the distance in their headlines.

Now, I use that metaphor because in our analytical world at ITR, the traditional leading indicators or predictive data points serve as our high beams at ITR. Those are the headlights that allow us to see the far out turns in the economic road or cycle coming. Well in March, we were essentially going down the interstate at about 120 miles an hour with nothing but our fog lights on due to the pace at which things were coming apart.

Now to expand on that, for those that aren't familiar, the various data collectors and reporting agencies in the US like the Federal Reserve Board, the Bureau of Economic Analysis, the Bureau of Labor Statistics, on and on and all their counterparts abroad collect all these juicy data points that we love at ITR, but it takes time. So the data releases in the US in March pertains to data points from February or earlier, like February housing starts or industrial production or retail sales.

Now, all those data points, very nice to note, but not nearly as relevant as they would normally be given that the economic world as we knew it radically shifted with the onset of March. Again, this is atypical as what occurred during the last four weeks is without precedent from a combined speed and severity standpoint.

So this is unique for us that ITR. Again, it was as stimulating as it was challenging because it rendered many of our favorite data sources temporarily stale and led us to dig deep into the cupboard for some more nimble data sources like weekly retail indexes or weekly unemployment claims and rely more on the day to day movements in the stock commodity and bond markets than we normally would.

But I come bearing good news. The good news is this is about to change now that we are in April as the headlights are coming back on. This month, we're going to get more meaningful data points and analytical anchors that will allow us to take that important first step in assessing the early damage of what occurred as a result of the Black Swans I mentioned earlier, and zero in on when that next low in the business cycle is going to occur.

Now, updates early this month include a couple of my favorites, like the ITR Leading Indicator, we make that one, and the US ISM purchasing Managers Index along with a whole host of others. Now, ITR subscribers and our consulting clients, they've probably already seen some of those early and crucial data points by the time this recording is sitting on the website, so if you haven't seen them yet and you want to, you can take a few clicks from where you are right here and head to our ITR insider page to sign up. That'd be a good way for you to stay up to date on those headline indicators.

But again, the good news is the economics of fear ruled the month of March, but that fear is starting to subside. Now, the situation is slowly resolving itself into the economic fundamentals of supply and demand, which will be mapped out in these leading indicators. These fresh data points are the high beams that are going to illuminate the path forward and allow us at ITR to gain a firmer analytical grasp of the situation and help you win with confidence.

Now, if you have any questions about building out, let's say, a specific package of indicator headlights for your business, please don't hesitate to reach out. But regardless, keep following along. ITR will keep you on the road. Until next time.

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Since 1948, we have provided business leaders with economic information, insight, analysis, and strategy. ITR Economics is the oldest privately held, continuously operating economic research and consulting firm in the US. With a knowledge base that spans six decades, we have an uncommon understanding of long-term economic trends as well as best practices ahead of changing market conditions. Our reputation is built on accurate, independent, and objective analysis.