“It seems like when there are these “surprises” in the jobs report, they usually turn out to be negative. “

September 7th, 2011

Jobs forecasts were wrong. And when they are “surprises,” things are usually worse than predicted.

The report contrasted with the expectations of economists surveyed by organizations like Bloomberg and Reuters, who had forecast about 64,000 jobs to be added. In the shorthand of financial journalists, the result was deemed to be “unexpected.”

It seems like when there are these “surprises” in the jobs report, they usually turn out to be negative. Behind two out of three economic doors, it seems, lies a goat, and not the shiny new automobile that will drive us along on the road to recovery.

Then again, it’s also my impression that negative economic reports, fairly or not, tend to receive more press attention than positive ones.  . . .

It turns out that since the start of the recession in December 2007, the consensus forecasts have been too optimistic on 28 occasions, and too pessimistic on 17 occasions. So there have in fact been more negative than positive surprises. On average, economists have overestimated job creation by about 18,000 jobs per month, or about 823,000 jobs total over the entire period.

If you focus only on the most serious misses — those where the Wall Street consensus was off by at least 50,000 jobs in either direction — there have been 18 negative surprises and 10 positive ones.

That sounds pretty bad, and it is — especially since people’s livelihoods are at stake. However, the results are only just on the verge of being statistically significant.

What’s interesting is that this pattern is fairly persistent across time: the study covers portions of three expansions and two recessions, and the optimism bias is present in all five periods. If anything, it’s gotten a little bit milder recently: economists were especially flummoxed when the jobs engine of the 1990s began to screech to a halt at the start of the 2000s.

The more benign explanation for this, I suppose, is that the economists surveyed by organizations like Reuters, Bloomberg and CBS MarketWatch are a bunch of unrepentant bulls, whose voices often tend to be heard more loudly in the financial newswires. The past decade or so has been associated with lots of volatility in stock prices — but in general, stock prices have remained expensive relative to earnings, and as
compared to longer-term trends
, despite a litany of economic problems in the broader economy.

This matches what I read in Future Babble. Experts that make favorable predictions are popular. Experts that make dire predictions do not get spots on CNBC. There is a perverse incentive to be more favorable. Though, what is amazing is that “experts” can retain the title of “expert” even after being so-consistently wrong.