Even in normal times, being an economic forecaster requires a multi-disciplinary approach. Not only do you need to understand the economic relationships, but you have to take all sorts of other variables into account: politics, finance, meteorology, psychology, supply-chain management and more. Add epidemiology to the list, as award-winning forecaster Ian Shepherdson of Pantheon Macroeconomics has done.
Shepherdson, who won the Forecaster of the Month contest for the ninth time in March, says that, based on his tracking of the growth rate of COVID-19 cases, tests and deaths, he’s becoming cautiously optimistic that the worst may be within sight. The economic data have been “as awful as we expected,” he said.
In the near-term though, the economic and financial market forecast will be determined by the course of the coronavirus pandemic, not only in the United States but globally as well.
The growth rate of COVID-19 deaths has been slowing.
Pantheon Macroeconomics
“The bottom line is that the nightmare scenario, in which the country sees a period in which many thousands of people die each day, and the health-care system is overwhelmed, seems to have been averted,” he says in a note to clients.
“The latest actions from the Fed and the likelihood of further substantial fiscal support mean that the risk of an uncontained failure of the economy beyond, say, the end of May, has greatly diminished,” Shepherdson told clients on Tuesday. “The speed and extent of the subsequent rebound remains deeply uncertain, but it is clear that both Congress and the Fed appreciate the depth and extent of the problem.”
Earlier, Shepherdson had warned of the risk that the stock market could relapse after its late March rebound, in part because “hopes for an early re-opening were likely to prove forlorn.” He’s still nervous, but hopeful that the strong monetary and fiscal response has diminished the danger.
He wouldn’t be surprised if stocks dropped again “as it becomes clear that the initial opening of the economy will likely come later, and be more gradual, than markets want to see, but a renewed period of free-fall seems unlikely.”
His latest forecast calls for the S&P 500 index SPX, +2.67% to end the year at about 2900, up about 4% from current levels. He thinks gross domestic product will plunge at an annual rate of 30% in the second quarter and 3% in 2020.
He says the U.S. is still not doing enough testing for the coronavirus. Furthermore, “the proportion of positive results is not yet falling meaningfully, as would be expected as an epidemic comes under real control. The country can’t safely reopen as long as this persists,” he wrote.
“At the same time, the virus data have been better than we hoped,” he wrote. “It now seems unlikely that rocketing deaths will force policy makers into lockdowns persisting into the third quarter.” That means July, not May.
“As recently as early last week, the U.S. appeared to be on course for total deaths to rise to 3,000 per day,” Shepherdson continued. “That now seems much less likely. The rate of increase clearly is slowing.”
Shepherdson puts a lot of weight on medical research indicating that the pandemic could slow in the heat of the summer, recognizing that could mean a second wave in the fall.
| Shepherdson’s forecast | Number as reported* | |
| ISM | 48.0% | 50.1% |
| Nonfarm payrolls | 140,000 | 273,000 |
| Trade deficit | -$45.5 billion | -$45.3 billion |
| Retail sales | -0.2% | -0.5% |
| Industrial production | 0.5% | 0.6% |
| Consumer price index | 0.1% | 0.1% |
| Housing starts | 1.600 million | 1.599 million |
| Durable goods orders | 0.5% | 1.2% |
| Consumer confidence index | 100.0 | 120.0 |
| New home sales | 775,000 | 765,000 |
In the March contest, Shepherdson had the most accurate forecast on four of the 10 indicators we track: The consumer price index, retail sales, the trade deficit and housing starts. His forecasts were among the 10 most accurate on two others: durable goods orders and industrial production.
The runners-up in the March contest were Jim O’Sullivan at TD Securities, Spencer Staples at EconAlpha, Douglas Porter’s team at BMO, and Stephen Stanley at Amherst Pierpont.
The MarketWatch median consensus published in our Economic Calendar includes the predictions of the 15 forecasters who have earned the most points in our contest over the past 12 months, plus the forecast of the most recent winner of the monthly contest.
The forecasters in our survey are: Jim O’Sullivan of TD Securities, Christophe Barraud of Market Securities, Ryan Sweet of Moody’s Analytics, Andrew Hollenhorst of Citigroup, Seth Carpenter’s team at UBS, Richard Moody of Regions Financial, Ian Shepherdson of Pantheon Macro, Michelle Meyer’s team at Bank of America, Chris Low of FHN Financial, Lou Crandall of Wrightson ICAP, Jay Bryson’s team at Wells Fargo, Stephen Gallagher at Societe Generale, Peter Morici of the University of Maryland, Stephen Stanley at Amherst Pierpont, and Brian Wesbury and Bob Stein at First Trust Advisors.
