Folly of Forecasters: NFP/Lehman/Goldman Edition

As I sat down to write this early this morning, no one knew what the jobs numbers would be. But I did know three related things:

1. The median forecast in a Bloomberg survey of economists is that 230,000 workers were added in August;

2. Almost all of the individual forecasters will be wrong. (Actually, every single forecaster was wrong, since the number came in at 142,000, way below the lowest estimate);

3. Many investors (and other finance and business professionals) hang on these forecasts as if they were Morpheus receiving word from the Oracle that “Neo is the One.”

Longtime readers of mine know my views on the folly of forecasts. I have spilled plenty of pixels here explaining just why that is (see this, this and this).

Every now and again, it is worth reminding ourselves just how terrible humans are at predicting what will happen in markets and/or the economy.

Today’s nonfarm payroll is a perfect example: That was a big miss. Of course, I have argued in the past that the NFP is the most overrated data point in investing (see this, this and this), but it does make the point of showing just how terrible everyone is at making predictions.

Continues here




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