Economic forecasters faced challenges, forged innovations during pandemic
Economic forecasting always comes with the hazard of trying to divine what the future holds, but the pandemic upped the uncertainty.
Still, nothing was going to stand in the way of the University of Michigan’s Research Seminar in Quantitative Economics from doing the work it has done for more than a half-century: The research team continued to produce regional, state national outlooks during the past year-plus, including two in May—one focused on Michigan and the other on the U.S.
Gabriel Ehrlich, the RSQE’s director, discusses forecasting during the novel coronavirus, the intersection with policymaking and what kind of lessons he and his colleagues have learned now that the worst appears to be behind us—barring an unforeseen circumstance.
While the aftershocks certainly aren’t over, your research seems to be showing solid signs of recovery. What did you learn after a year-plus of looking ahead in this environment?
The first thing I have learned is to be humble. COVID-19 has been different from anything I had seen previously in my career, and we have had our share of misses to go along with our hits in this period.
Undoubtedly, I will receive additional reminders to remain humble in the future as well, given the large uncertainty around the economy as the pandemic subsides. We give it our best shot to see the future, but there are a lot of clouds still out there.
Second, I have seen again how much of a difference government policy can make. It looks like we will get a V-shaped recovery from the pandemic recession, but things could have been much worse. We got a much more aggressive and timely government response to this crisis than following the Great Recession, and our view is that we will get a faster economic recovery because of it.
Were there any surprises or changes to what you and your fellow economists do—or how you do it? Did this period lead to analyzing aspects of the economy differently that could outlive the pandemic?
The pandemic has really shown the value of “big data” in economics. We have turned to data from cell phones, payment processors, online scheduling systems and more to get a real-time read on what has been happening in the economy. I definitely expect the increased use of big data and nontraditional sources to outlive the pandemic.
At the same time, the new data sources have also reinforced the value of the official government statistics that we rely on. The new data sources generally do not feature the types of seasonal adjustments, predictable revisions and economywide coverage we expect from the official statistics. For those reasons, we like to say that the new big data sources during the pandemic are a complement to, not a substitute for, the official statistics.
You present your research to lawmakers and other state leaders as part of the revenue-estimating effort tied to budget-making. One can certainly draw a clear line between economic data and policymaking since the onslaught of the pandemic. Have you noticed a change in how your data has been received by policymakers during this era?
There has certainly been an uptick of interest in how the economy is doing since the pandemic began. That being said, I have been consistently impressed in this job by how thoughtfully our state and local leaders have approached the economic data both before and during the pandemic.
Your latest U.S. economic outlook says, “The pandemic will likely soon diminish to a second- or third-order influence” in your research. Yet, the outlook also notes “good news will likely filter slowly into the collective psyche.” You’re in the business of economics, not psychology, but do you have to look at this through many more lenses than you otherwise would have in life before the pandemic?
We have absolutely had to look at the economy through many more lenses since the pandemic began. Epidemiology, politics and psychology have all played important roles in shaping our outlook. Of course, we are economists, not experts in those other fields, but we have been very grateful to speak with many experts in other fields who have been generous with their time and insights as we have produced our forecasts.