Author Topic: Big data, fake news and global growth  (Read 94 times)

0 Members and 1 Guest are viewing this topic.

Richard Mellor

  • Full Member
  • ***
  • Offline Offline
  • Posts: 205
Big data, fake news and global growth
« on: July 21, 2018, 06:00:57 PM »
Big data, fake news and global growth

by Michael Roberts

This week, it was reported that the number of Americans filing for unemployment benefits last week was the lowest since 1969!

The official unemployment rate is also near an all-time low.  In  Japan and the UK too, the unemployment rates are near lows and in  Europe, the official rate is heading back to pre-global crash levels.

As I have reported in previous posts,  measures of economic activity from various sources suggest that the  world capitalist economy has been picking up pace in growth since the  near slump of 2015-16.  This is particularly the case for the most  important capitalist economy, the US.

Below is the world composite PMI (purchasing managers index).  This  is a survey globally of the state of economic activity in both  manufacturing and service industries as the corporate executives see  it.  If the measure is above 50, world economic activity is rising.   Currently, the PMI shows a return to trend expansion after the near  contraction of 2015.

Next week we shall get the first estimate of US real GDP growth for  the second quarter of 2018.  It is likely to be strong.  The Atlanta  Federal Reserve has a ?high frequency? forecast measure for each  quarter?s growth and it currently expects the Q2 figure to come in at a  4.5% annual rate.  That means real growth in Q2 would be about 1% point  above Q1.  If that turns out to be right, it means that the US economy  would have motored along at about 3% for the first half of 2018.

No doubt President Trump will make much of this apparent fast  expansion and claim it for his policies of tax cuts for the corporate  sector and the top 10%.  However, as a recent study has shown,  this will be ?fake news?.  The study by some European economists found  that there was no difference between the post-election performance of  the US economy under Trump and a synthetic ?doppelganger? US economy  without Trump, suggesting that there has been no ?Trump effect?. ?The  employment performance of the US economy since the election was no  different from its doppelganger. There is nothing in the data that  indicates an acceleration of employment creation because of President  Trump.?

But the most usable surveys of economic activity in the US do show  that the economy is expanding at a reasonably fast rate (if no faster  than the average of 3.3% since 1945).  Here is a graph that combines  various surveys of economic activity in the US.  Anything above 0 (LHS)  or 50 (RHS) implies that the economy is growing.  The current RHS rate  is close to 60 which implies fast expansion ? certainly compared to 2016  when the measure was below 50, implying contraction and, of course,  much higher compared to the Great Recession when output collapsed.

The other major capitalist economies do not seem to be doing as well  as the US, despite previously optimistic reports.  The EU is growing at  about 1.6% annually, the UK at under 1%, and Japan is actually  contracting.  Nevertheless, global growth is expected to show an  acceleration in 2018 over 2017, when all the emerging economies of  China, India etc are included.

But can we get more frequent and comprehensive measures that could  actually forecast accurately what will happen in future quarters and  years?

The huge eruption of what is called ?big data? from the internet,  social media and other sources in the last ten years has led to a new  industry of forecasting that aims to deliver more frequent and accurate  estimates of future developments, in the same way that weather  forecasting has improved.

The Federal Reserve Bank of New York has refined this big data in its own survey of US economic activity.  And as long ago as 2013, the Bank of England?s economists looked at the use and efficacy of big data.  They looked at indicators for global growth in industrial production  and trade.  They found that sharp changes in various indicators were a  good guide to future production and growth.  However, the problem with  these indicators of future expansion is that they are not that timely,  with data only on a monthly (if you are lucky) but more usually on a  quarterly basis.

The statistical economists have recently looked for more timely data and a Bank of England economist recently published a paper on the best predictors of global growth. The paper found that the daily movement in metals prices was a reasonably accurate measure of global economic activity.  ?Metals prices are highly correlated with world activity? and perform well at predicting world GDP in the near-term.?

In other words, the pace of change in metals prices in this month of  July will give a reasonable estimate of world real GDP growth for July  (and eventually Q3), well ahead of any official data (Q3 world growth is  not going to be available until January 2019).

The Bank of England economists used the S&P metals prices index as their metals prices indicator.

As you can see (circles), the metals index fell sharply during the  Great Recession in real GDP and predicted the subsequent recovery  exactly in mid-2009.  Similarly it predicted the recovery from the  relative slump in 2015.  Remember the actual real GDP figures for most  countries do not become available until up to two quarters later or even  more.  So the metals index becomes a ?high frequency? indicator for  growth.

Copper is the largest constituent of the index and it is a metal used  in just about every important industrial and consumer appliance or  service.  So the copper prices index is also likely to be a good  indicator, in my view.  When I ran the copper price against world GDP  growth, the correlation was very good.

So looking ahead, what do the metals price and copper price indexes  tell us about the current Q3 period and onwards?  I did the trend  measure of the copper price, and it shows that expansion from the trough  of 2015-16 seems to have peaked.  That suggests the global expansion  from 2017 which was above the trend rate has now subsided back to the  trend and may fall below.

The metals price index also suggests that the peak in the current  acceleration of global (and US?) growth ended in June 2018 and the  direction is now downwards in Q3 (the period beginning in July).

So don?t be overwhelmed by the good news stories about US real GDP figures for Q2 2018 next week.
Source: Big data, fake news and global growth