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By New_Deal_democrat December 30, 2016 11:24 am
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Scoring my 2016 forecast: GOAL!
At the end of every year, I take a look back to see how well my forecast for both the first and second halves of the year turned out.  My methods are pretty transparent, and grading myself is a learning exercise when I miss things.

I'm giving myself a little pat on the back this year, mainly because my first half forecast. 

Here's what I said last January:

"The third quarter of 2015 featured no positive readings [in the Index of Leading Indicators] whatsoever.  On top of that, I have recently suggested that the trade weighted US$ should be included as a short leading indicator, with a weight given of +/- .1 for each +/-1% change in the value of the dollar.  Since the US$ has been slowly trending higher over the last 6 months, this suggests to me that this winter we can expect a definite rough patch, that probably has already started.   With the readings for the final 3 months of 2015 firmly positive so far, by late spring we should be seeing a rebound."
Here is the graph I cited of the LEI as they stood one year ago:
I then discussed how deflationary recessions tend to bottom when commodity prices have their worst YoY readings, and concluded:
"Unless you think oil is falling to $10/barrel or some such, the likelihood is that the deflationary pulse in commodities is abating.  Prices may continue to fall, but most likely at a lesser rate.  That would coincide with what the LEI is telling us.
In conclusion, I suspect that the global trade induced deflationary slowdown in the US economy is going to abate by the second quarter."

And here is what happened with industrial production:

And total business sales:

And the inventory to sales ratio:

What I referred to back in 2015 as a "shallow industrial recession" did indeed bottom out in the February-March period, exactly as I anticipated. We did have a "rough patch" last Winter, that abated by late spring, as indicated by the nearly complete stall in Q1 GDP.

Now here is my second half forecast from early last February:


"This result is not as clear cut as in previous years, not just because there are some mixed signals, but also because it is clear that the strength of the US$ can overwhelm other indicators, and I have no framework to forecast its direction this year.  So, while the positives sufficiently outweigh the negatives for me to forecast that the domestic US economy will remain in expansion until the end of 2016, you can throw this forecast into the dumpster if the US$ appreciates at 10% or more YoY as it has since late 2014."

While I missed the strength of the rebound as manifested in Q3 GDP, the trend did indeed improve and growth as of November data at least has certainly continued.

All in all, not too shabby.

Of course I will make my 2017 forecast, using the same time tested and transparent methods, starting next week.

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