Market Overview Analysis by James Picerno covering: . Read James Picerno's latest article on Investing.com
It’s a human shortcoming to favor simple explanations for the business cycle. The notion that reliability and timeliness can be forged in one indicator endures, but recent history has hammered this approach, reminds a new commentary from Axios.
Fortunately, there are techniques to minimize the noise, maximize the signal and boost the timeliness and reliability of recession analytics. It starts with a basic premise that’s been documented for decades in empirical analytics: combining modeling analytics enhances results. Indeed, there’s a crucial tradeoff that must be recognized in recession analytics: timeliness vs. reliability. The two are in conflict with one another. Although there’s no one perfect answer for calibrating this relationship in modeling, ignoring this hard fact by relying on one, even a handful of indicators is asking for trouble.
The key principle: the estimates reflect a wide variety of indicators and models. The reasoning: it’s never clear which indicator or model will fail in real-time–and, yes, something’s always failing. It’s the aviation equivalent of recognizing that if you’re flying across the Pacific, it’s well-advised not to rely on one engine.
Why limit the forward estimates to a month or two? Because looking out much further is guessing. It’s deeply flawed/naive to assume that it’s possible to model how the complexity of the US economy will involve much beyond the near future.
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