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Wrong in all the right ways

“An economist,” said Laurence J. Peter*, “is an expert who will know tomorrow why the things he predicted yesterday didn’t happen today”.

Currency strategists are similar, but it usually takes only a few minutes to see our predictions go completely wrong.

We’re not aware of anyone (economist or otherwise) who accurately forecast this morning’s 4.9-percent surge in third quarter gross domestic product back in July, yet we feel relatively confident in thinking that this outperformance won’t be repeated – and may even reverse – over the final three months of the year.

Consumer spending growth through the summer months appears to have come largely from drawdowns on savings and credit, with disposable income shrinking and savings rates declining further below pre-pandemic norms. Residential investment is unlikely to continue its positive contribution after mortgage rates climbed substantially in September and October. Sentiment surveys suggest that businesses could move onto a more cautious footing, reducing investment and inventory-building activities. And the Conference Board’s Leading Economic Indicator index – with very few false negatives in its history – remains firmly in negative territory.

A slowdown still looks imminent… but we hope we’re wrong, and look forward to explaining why in a few months.

*Originator of the “Peter principle” which suggests that people in a hierarchy tend to rise to their “level of respective incompetence” – a concept that explains much of what we see across the corporate and political landscape.

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