The Wall Street Journal’s ‘Most Accurate Economic Forecaster’ Said Market Would Tank If Trump Won

The Associated Press
The Associated Press

The economics profession has a Trump problem.

The problem is pretty straight forward. Economists have consistently underestimated the positive economic impact of Donald Trump’s policies. Often, in fact, the consensus view of economists has been dead wrong, predicting economic and stock market slumps while the economy roared and the stock market skyrocketed.

The Wall Street Journal on Monday reported that a St. Louis-based company called Macroeconomic Advisers was the “most accurate” economic forecaster based on five variables for 2017. And clearly Macroeconomic Advisers did better than its competitors. But even the best was too gloomy.

Macroeconomic Advisers predicted that the unemployment rate would be 4.3 percent at year end, when actually it was 4.1 percent. It forecast gross domestic product would grow 2.3 percent. In fact, the economy grew by 2.5 percent. The forecast for headline inflation was 1.9 percent; actual headline inflation was 1.7 percent. Core inflation, which excludes fuel and food, was seen as hitting 1.7 percent. It hit just 1.5 percent.

The average forecasts in the Wall Street Journal‘s survey of economists was even more off the mark, predicting higher inflation, higher unemployment, and lower economic growth.

Forecasting errors are nothing new in economics. What makes the errors in the forecasts troubling is that they all go in one direction: predicting a worse economy under the Trump presidency than reality delivered. When errors are tilted the same way, they no longer appear to be random. They look like evidence of a persistent bias.

This bias has been evident for quite some time. Macroeconomic Advisers predicted in the fall of 2016 that stocks would drop by seven percent if Trump won the election, and would rise by four percent in Clinton won. Finance expert Steve Rattner predicted “a market crash of historic proportions.” Citigroup’s chief U.S. equity analyst said the S&P 500 would drop by three percent to five percent “immediately”

Instead, stocks rose at an almost unprecedented rate following Trump’s victory. The S&P 500 rose by 30 percent in the year following election day, for example.



Please let us know if you're having issues with commenting.