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EXPERT SPOTLIGHTJeffrey Rosen, Ph.D.
Jeffrey has developed a large-scale macroeconomic forecasting model that
allows him to analyze current economic trends and determine their future
impacts on the economy.
His analyses can be found on the Economic Calendar in addition to the Economic Insight, Economic Data Previews, and Economic Data Reviews columns. He also provides commentary on Live In Play.
Prior to joining Briefing.com, Jeffrey spent two years at AEGON where he provided long-term economic forecasts and analyzed current economic problems for the investment division.
He was an adjunct professor at Ohio Wesleyan University teaching econometrics and obtained a Ph.D. in Agricultural, Environmental, and Development Economics from Ohio State University.
Get the inside scoop on Jeffrey Rosen. This expert spotlight features:
• Chief Economist Named Marketwatch's Top Forecaster for January
• Jeffrey Featured in the Media
Q & AQ: You've developed a proprietary large-scale macroeconomic forecasting model. How do you use that to analyze economic trends?
Our proprietary macroeconomic model follows typical economic fundamentals and coordinates the movement of over 100 different economic variables.
In the near-term, the model uses the high frequency monthly economic data and estimates current quarter GDP growth. In the long-run, the model picks up less volatile trends and provides an estimable path for where the economy is headed.
We use the model to understand how the economy is performing in today and to gauge the long-term effects of potential exogenous shocks.
Q: It seems like every day another prominent economist puts out a new economic forecast that downgrades expected growth for the fourth quarter and beyond. Why then is the hard data consistently and, sometimes, shockingly topping expectations?
The reasons for the downgrades do not venture far from the usual suspects: uncertainty about the fiscal cliff, austerity, and weak global demand.
While economists continue to ply downbeat analyses, actual economic conditions are not only strengthening but are accelerating.
Truth be told, economists may be late in forecasting the start of an above-potential recovery.
Using an analytical toolkit, we developed proprietary Briefing.com Economic Activity and Surprise Indices that broadcast the differences in consensus expectations and the actual hard economic data.
A glance at the chart above shows that economists turned pessimistic in July and have become more downbeat on the economy over the past four weeks. Yet, these negative feelings are in direct contrast to economic data that have improved dramatically.
The contrasting viewpoints has resulted in the actual economic data reporting positive surprises in the neighborhood of 0.5 standard deviations above consensus forecasts.
The less volatile 3-month moving average is showing similar, albeit slightly smaller, positive surprises.
Despite the contention that businesses and consumers would pull back in the face of uncertainty, economic growth is actually improving. The data are showing an economy that is growing slightly stronger than its trend over the last ten years.
There have been several false, positive turning points in the past -- including end-of-the-year surges in both 2010 and 2011 -- that could suggest the recent improvement in economic conditions will ultimately be transitory. Still, it is important to note that recent surprises suggest the economic situation is not as dour as is often reported.
As we start processing the data for our fourth quarter outlook that will be released next week, we will take into consideration the sudden shift in the underlying economic trends. While the exact forecast is unknown at this time, improving conditions will likely warrant a preliminary Q4 2012 GDP forecast that is stronger than the three quarters that preceded it (2.0% for Q1, 1.3% for Q2, and 0.9% for our Q3 forecast).
That does not mean, however, we now expect the economy to reach or exceed the 3.0% q/q gain that is needed to shrink the output gap. A more temperate gain in the neighborhood of 2.5% q/q is more probable.
Q: The September sub 8.0% unemployment rate was pretty shocking. What was the cause?
Analysts are looking for reasons why the decline beat expectations by a seemingly unfathomable 0.3 percentage points, yet the fact of the matter is that the decline in the unemployment rate is consistent with underlying trends.
For the past several months, the initial claims level has been glued between 350,000 and 400,000 per week. Given current economic growth factors, that should result in payroll gains of at least 150,000 per month. That is enough to lower the unemployment rate at a gentle pace. Payroll gains near 200,000 per month would support a more accelerated reduction in the unemployment rate.
After the most recent revisions to the July and August payroll numbers, job gains now average the 150,000 expected from the initial claims level since January 2012. That explains the downward trend in the unemployment rate, but not why the unemployment rate fell so much in one month.
Wells Fargo released a note that blamed poor seasonal adjustment factors and/or a poor sample size as the cause for the drop in the unemployment rate. Anecdotally, these reasons seem plausible, but, statistically, these explanations have no bearing.
The unemployment rate has declined during the fall months over the past few years, which pointed to outsized economic growth that never materialized in the GDP data. Wells Fargo believes that the Lehman Bros. bankruptcy in 2008, which led to mass layoffs, resulted in a one-time shock to the size of the unemployment pool that was unintentionally incorporated into the current seasonal adjustment factor.
In essence, the sudden spike in unemployed workers in September 2008 caused the current seasonal adjustment factors to: (1) lower the number of unemployed artificially (2) boost the number of workers that found jobs in September and (3) be the source for the downward bias in the unemployment rate.
There is some justification for this theory in the data, but the size of the effect is minor and is not enough to explain the 0.3 percentage point decline in the unemployment rate.
Since 2008, the current seasonal adjustment factor is smaller than where it was in 2008 and has been trending lower, with minor volatility, since 2002. Thus, seasonal factors have become increasingly more favorable since 2002.
If the seasonal adjustment factor was set at the 1990 - 2012 average, the unemployment rate would have fallen to 7.89% in September 2012 as opposed to the officially reported 7.80%. Furthermore, if the seasonal adjustment factor was set at its 2008 level, the unemployment rate would have fallen to 7.82%.
Neither of these levels is materially different from the unemployment rate reported by the BLS.
Wells Fargo's second explanation - poor sample size - falls more in-line with a discredited conspiracy theory than an actual cause.
The BLS surveys approximately 60,000 people every month in order to calculate changes in employment. It is possible that the survey oversampled the number of people who had found jobs in September, which caused a severe downward bias in the unemployment rate. Yet, it is equally possible that the survey undersampled the number of workers who found jobs in August, which resulted in an upward bias to the unemployment rate that month.
Statistically, the under/over-sampling problem would occur every month but, over time, the sampling problems would cancel each other out. As a result, sampling errors would also not materially impact the unemployment rate.
If seasonal factors and sampling were not the root cause for the sudden decline in the unemployment rate, then what caused it?
Quite simply, labor market conditions supported the big gain in employment. In fact, poor/biased payroll data may be the reason why analysts are touting dubious reasons for the drop in the unemployment rate.
As reported in the October 4th Economic Insight column, "Tone Set for Better-than-Expected Payroll Levels?", newly released preliminary benchmark revisions showed that reported payrolls undercounted the number of newly created positions by 386,000 jobs from April 2011 to March 2012. That means, on average, payroll growth should have been 32,000 more per month during that time frame.
Before the revisions, the BLS reported that payroll growth averaged 162,000 jobs from April 2011 to March 2012. That was enough to support the downward trend in unemployment but not enough to explain a sudden acceleration in employment growth.
After taking into account the preliminary benchmark revisions, however, payrolls grew by an average of 194,000 new jobs per month. That is easily enough to support a solid decline in the unemployment rate.
Using these new data, it is statistically plausible for the unemployment rate to have fallen to its January 2009 lows in September.
Chief Economist Named Marketwatch's Top Forecaster for JanuaryAccording to Rosen, "the U.S. economy will have a hard time making any headway at all this year as Washington doubles down on its plan to slice hundreds of billions of dollars out of the federal deficit."
Higher payroll taxes mean a “sizable drop in disposable incomes,” and reductions in government spending “will continue to hurt the economy going forward.”
"There’s not enough spending power out there” to replace the spending that’s being removed from the economy," says Rosen.
“When you cut out all that potential spending, it leaves a lot to growth to come from other areas,” he said. He’s skeptical that private individuals and businesses can fill the gap left by austerity.
For all of Jeffrey's insight, read the full MarketWatch article now.
Jeffrey Featured in the MediaOct 1 – Huffington Post – Jeff says, "It's rough out there. The economy may have grown at a rate of less than 1 percent in the third quarter."
Read the article now.
Aug 13 – Market Wrap with Moe Ansari – Jeff provides insight on his Q3 economic outlook. Listen to the interview now.
Aug 9 – Kitco News – Businesses are flush with cash, household debt levels are more normal and new housing inventory is depleted," says Jeff.
Click here to read the full article.
Jul 12 – KMJ News Talk Radio – Jeff provides insight on current economic weakness. Listen to the interview now.
Jul 11 – MarketWatch – Jeff is Marketwatch's Top Economic Forecaster for June. Click here to read the full article.
May 15 – Forbes – Jeff states, "Not being able to make payroll because of poor sales versus demand, that’s the number one concern (of business)." Click here to read the full article.
Apr 23 – USA Today – Jeff articulates that, "Things are getting better. The economy is picking up and hiring is going to be on the rise."
Click here to read the full article.
Mar 12 – US News & World Report – Jeff gives his advice on the economic recovery, “If the economy rebounds, equity prices will go up and profits will go up.” Click here to read the full article.
Mar 5 – Market Wrap with Moe Ansari - Jeff provides insight on his Q1 economic outlook. Listen to the recorded interview now.
Feb 29 – US News & World Report – Jeff gives his thoughts on the moving market, “For all of the weakness that is expected to play out through 2013, we see more upside potential than downside risk.” Click here to read the full article.