Tag Archives: forecasts

Recession Watch: the economic indicators that show what’s coming

Summary: As the expansion ages and growth slows, we should begin to watch for signs that the next recession approaches. Here are some tips for doing so without spending much time at it — avoiding the complacency of Wall Street’s economists and the exaggerated darkness of the popular permabears (such as Zero Hedge). {2nd of 2 posts today.}


What should we watch among the blizzard of economic data? Journalists tend to focus on the numbers most frequently reported, usually about manufacturing and housing. Such as this week’s existing home sales volume (oddly, we don’t similarly obsess over NYSE volume). It’s important for people in that biz, but tells us little about the US economy.

Also big in the news are new home sales, building permits, mortgage applications, and many other housing datapoints. For a simple measure of this industry see total residential construction spending. It shows a continued strong expansion. Tune in next month to see if anything has changed.

Residential Construction Spending

What are the most important economic numbers?

But the often dramatic graphs don’t tell us the importance of those numbers. Here’s one perspective on the big picture…

  • Construction value added: 4% of GDP (housing is 1/3 of this).
  • Goods-producing value added: 19% of GDP (manufacturing is 12% of this).
  • Services value added: 68% of GDP.

Another way to see this relationship: manufacturing new orders were 15% of GDP in 1995; now they’re only 10%. Manufacturers employed 30% of all non-farm workers in 1955; they employ only 9% today. Manufacturing was once the key swing sector of the economy; now we are a services economy. Unfortunately there are few good leading indicators for the service sector. Creating Purchasing Managers Indexes for Services was a creative idea, but untested — and doesn’t make much sense to me: what do they PM’s of service corps do that gives them special insight about the economy?

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Recession Watch: Falling Commodity Prices to Hurt America

Economic indicators are like biosigns of a living organism. They signal changes in complex systems that we cannot directly say and don’t well understand. The top rule is that rapid change in key indicators shows destabilizing forces at work, despite the complacency with which they’re usually seen by economists.

We see this in the on-going collapse of commodity prices. This has beneficial effects on America, but signals rising global stress — both political and economic — that might bite us hard. See my analysis of this at Wolf Street…

Recession Watch: Falling Commodity Prices to Hurt America

A leading indicator of trade, economic growth, and geopolitical instability

A hard landing for the Hindenburg

Update on El Niño: will Gaia disappoint the climate activists?

Summary: Climate alarmists have run wild with predictions about the “monster” “Godzilla” El Niño, their last throw of the dice before the COP-21 climate conference in Paris. Here is an example by Brad Plummer, with some debunking. The latest forecasts of the major climate models suggest that it will disappoint activists (but match NOAA’s more cautious predictions).

El Nino in action, from NOAA

When did we “pathologize” weather? When did commonplace weather become abnormal? The debates over the past and future of anthropogenic climate change are of great importance (climate change is ubiquitous in history). But the news increasingly describes normal weather as a kind of plague, something to fear.

For example see “El Niño, explained: A guide to the biggest weather story of 2015” by Brad Plummer at Vox. Plummer’s perspective is clearly stated by his tagline: “On the apocalypse beat, more or less.” His article is a masterpiece of propaganda, creating fear to advance his public policy agenda. A few excerpts, matched with reality, tell the tale.

“Now it looks like we’re in for a monster. The El Niño currently brewing in the Pacific is shaping up to be one of the strongest ever recorded.”

Plummer links to a page by the World Meteorological Organization, which gives different message. Their forecast is “placing this El Niño event among the three strongest previous events since 1950 (1972-73, 1982-83, 1997-98).” Plummer says “strongest ever recorded”, which suggests a long-term record. Unlike saying one of the four strongest since 1950, which is not alarming.

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How should we prepare, as a new era begins for the world economy?

Summary: Often the most important insight is the largest but least obvious aspect of a situation, hidden amidst the river of data that flows over us every day. Today the key thing to know is that we’ve entered a new world, once in which almost anything can happen. This creates new rules for individuals and business, with new risks and opportunities.  {1st of 2 posts today.}

“Innovation of new forms of society and technology. It is the key to our progress. It has allowed us to evolve from naked hunter-gatherers to the dominant species on this planet. This process is slow, normally taking hundreds or even thousands of years. But occasionally evolution leaps forward.”

— A slightly revised version of Professor Xavier’s words from the title sequence of the movie “X-Men”.

The new era begins

Signs of the new era

I find that even casual conversations with my fellow Boomers show that most of them feel that the world has changed since 2000, as if a tornado has carried us to Oz — a world where everything is different. Here are a few examples; you can add many more to this list (a longer list appears at the end).

The 2008 global recession was the worst since the 1930s, on a scale that economists believed could not happen again, with causes that remain poorly understood.

Bubbles are an inherent part of free market systems, randomly appearing during the past two centuries (they predate both fiat currencies and fractional reserve banking). The Wall Street adage was that “everybody gets one“. We’ve had three during the past two decades.

The post-WWII era was one of cyclical growth, as booms ended when Central Banks “took away the punch bowl” to stop inflation from rising above their limits. Now Central Banks set goals for a minimum rate of inflation to provide a cushion against deflationary busts. Despite massive increases in money and reserves they cannot bring inflation up to those targets.

Accurate economic predictions have become almost impossible, as we should expect during regime change. During the past five years we’ve seen frequent predictions by economics of inflation or hyperinflation on one hand, and on the other hand predictions of a “return to normal” or even “booming” growth. Astonishingly, both have proven wrong.

More broadly, paying attention to predictions has been a waste of time since 2010 — not just in economics. Who predicted the rise of the Islamic State (which reads like dystopian fiction), the Middle East aflame and sliding into what might become like the horrific Thirty Years War? Did any political guru predict that 3 months before the first primary, half of Republicans would support Trump or Carson, with the establishment candidates trailing far behind? Did anyone foresee the increasingly loud calls for “gender-neutral” bathrooms?

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Manufacturing climate nightmares: misusing science to create horrific predictions

Summary: Scientists and journalists bombard us with news about the coming climate catastrophe, described as certain unless we drastically change our economy. This has plunged many into despair. The hidden key to these forecasts is RCP8.5, the worst case scenario of the IPCC’s Fifth Assessment Report — often erroneously described as the “business as usual” scenario. Understanding this misuse of science reveals the weak basis of the most dire warnings (which set the mood at the Paris Conference), and helps explain why the US public assigns a low priority to fighting climate change despite the intense decades-long publicity campaign.

“We’re going to become extinct. Whatever we do now is too late.”
— Frank Fenner (Prof emeritus in microbiology at the Australian National U); Wikipedia describes his great accomplishments), an interview in The Australian, 10 June 2010.

Climate nightmares

In the IPCC’s Fifth Assessment Report four scenarios describe future emissions, concentrations, and land-use. They are Representative Concentration Pathways (RCPs), the inputs to climate models that generate the IPCC’s projections. Strong mitigation policies lead to a low forcing level of 2.6 W/m2 by 2100 (RCP2.6). Two medium stabilization scenarios lead to intermediate outcomes in RCP4.5 and RCP6.0.

RCP8.5 gets the most attention, with its bold and dark assumptions. It is a useful and important scenario, a warning of what might happen if the 21st century goes badly. It should spur us to act. Unfortunately from its creation RCP8.5 has often been misrepresented as the “business as usual” scenario — and so became the basis for hundreds or thousands of predictions about our certain doom from climate change.

The result of this (part of a decade-long campaign) is widespread despair among climate scientists and more broadly, among Leftists. This misuse of RCP8.5 is a triumph of propaganda, but polls show its ineffectiveness (with climate change ranking at or near the bottom of public policy concerns). Yet each month brings more of the same.

What future does RCP8.5 describe?

“In 2002, as I edited a book about global climate change, I concluded we had set events in motion that would cause our own extinction, probably by 2030. I mourned for months …”
— “Apocalypse or extinction?” by Guy McPherson (Prof Emeritus of Natural Resources and Ecology, U AZ), Oct 2009.

The papers describing the RCP’s clearly state their assumptions, unlike most of those that follow them. RCP8.5 describes a bleak scenario, a hot and dark world in 2100 (since it’s powered by coal, perhaps literally dark) — even before considering the effects of climate change. Below are the key points, with graphs from “The representative concentration pathways: an overview” by Detlef P. van Vuuren et al in Climatic Change, Nov 2011. See this post for a more detailed look.

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What if the “Godzilla” El Niño is a dud?

Summary:  After months of hype about this “Godzilla” El Niño, the peak approaches. The major climate models warn that it might be just another strong cycle (like 1997-98), as NOAA & the WMO have predicted — not the precedent-breaking monstrous event predicted in the news headlines. As a thought experiment, consider how might this — another blown forecast — affect the public’s confidence in climate scientists. This is a follow-up to July’s post Prepare for a clickbait avalanche about the super El Niño! First of two posts today.

“Climate change journalism is mostly crap if you didn’t notice because it’s not done by journalists. Mostly advocacy & self promotion.”
Climate scientist Ryan Maue (@RyanMaue), 14 July 2015.

Ignorance is a choice


  1. Experts forecasts about this El Niño.
  2. What if there is no “Godzilla” El Niño?
  3. Good advice from NOAA & others.
  4. Should we care about weather records?
  5. What’s a strong El Niño?
  6. For More Information.
  7. To better understand extreme weather…

(1)  Experts’ forecasts about this El Niño

“This definitely has the potential of being the Godzilla El Niño.”
— Bill Patzert, a climatologist with NASA’s Jet Propulsion Laboratory, in the LAT.

NOAA’s current forecast, as of October 15 expects a strong El Niño. There have been 8 strong El Niño cycles in the 64 years since 1951, including the 1997-98 “super” El Niño.


The May forecast of this cycle by NOAA’s CFSv2 models had its highest peak, predicting aprox 3.2°C for November 2015 — which would have been exciting if it occurred. Since then its forecasts have fallen. The latest run, as of October 25, predicts a peak of aprox 2.6°C in  November (it’s now 2.5°C). That would be a record in the brief 64-year long record (slightly above 1982 and 1997), but not a “Godzilla” event. Unless Godzilla visits every decade or so.

CFSv2 as of May 2015

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A way to break the gridlock on the climate change debate

Summary: The public policy debate about climate change consists largely of people tossing confetti at one another, with the reasonable people either pushed to the sidelines or buried. There is a simple step that both sides can agree on, with the potential to break the gridlock. Here’s a brief version of my proposal.

Trust can trump Uncertainty.”
Presentation by Leonard A Smith (Prof of Statistics, LSE), 6 February 2014.

The most important graph from the IPCC’s AR5

Figure 1.4 from the IPCC's AR5

Figure 1.4 from AR5: Estimated changes in the observed globally and annually averaged surface temperature anomaly relative to 1961–1990 (in °C) since 1950 compared with the range of projections from the previous IPCC assessments. Click to enlarge.

After 26 years of debate, US public policy on climate change remains paralyzed. Polls show that it ranks near the bottom of American’s concerns. We even remain poorly prepared for a repeat of past extreme weather, such as a major hurricane hitting an East coast city – let alone future climate. Both sides rehash their arguments, accomplishing nothing.

Climate scientists can begin to restart the debate and rebuild public confidence: re-run the climate models from the first three IPCC assessment reports (ARs) with actual emission data (from their future). See if they can show that models predict the observed global temperatures with reasonable accuracy. The cost of this project would be small compared to the overall funding of climate research and a dot compared to the potential costs of climate change.

The famous “spaghetti graphs” — one the most-cited graphics from the ARs — shows the forecast of models used in each report vs. actual global average atmospheric temperature. They tell us little, as in the above graph from the most recent AR. It packs too much information into one graph, but does not show what we most want to know: the accuracy of their forecasts. Each line represents a temperature forecast with specific assumptions of greenhouse gas (GHG) emissions.

How well do the models work if input with accurate GHG emissions? The answer can provide a fair test of the major climate models, one acceptable to both sides in the policy debate. A brief explanation of the models shows why.

{Read the full article at Climate Scepticism.}

“In an age of spreading pseudoscience and anti-rationalism, it behooves those of us who
believe in the good of science and engineering to be above reproach whenever possible.“
P. J. Roach, Computing in Science and Engineering, Sept-Oct 2004 — Gated.

Other posts in this series

  1. How we broke the climate change debates. Lessons learned for the future.
  2. A new response to climate change that can help the GOP win in 2016.
  3. The full version: climate scientists can restart the climate change debate – & win.