Test Your Prowess At Economic Forecasting

They never see it coming. By “they,” I mean almost everyone. By “it” I mean a surprise in the economy.

As evidence, consider my annual Derby of Economic Forecasting Talent (DEFT), which has just concluded its 19^th year. Inflation in 2021 heated up to 7%. Not a single one of the 30 contestants guessed that high.

Contestants also missed the boat on unemployment, which fell from 6.7% to 3.9% during 2021. All 30 participants guessed too high.

Predicting the future is hard, verging on impossible. But we human beings have a strong impulse to try. Anyone can enter this contest, which requires answering six questions about where the economy will be at year-end. If you’d like to play, the six questions are at the end of this column.

History of Misses

People tend to assume that the future will look just like the past, especially the recent past. Contestants’ errant guesses in 2021 continued a tradition in which contestants failed to foresee sharp turns in the economic road.

When my 2020 contest began, the Covid-19 pandemic had already been raging for a year, and most contestants predicted subdued economic growth: Their median guess was growth of 1.1%. But what actually happened was much worse: The economy shrank by 2.3%.

In 2017, there were 45 contestants, and 44 of them expected interest rates to rise. And yet they fell a notch, from 2.45% to 2.40% on 10-year Treasury notes. (In all candor, I had also expected rates in rise.)

In 2016, the price of oil rose from $37 to $54 a barrel. Not a single contestant guessed high enough. It’s not because contestants are amateurs that their arrows miss the mark. Some contestants are financial professionals. And surveys by The Wall Street Journal have shown that even professional economists usually fail to predict the economy’s major shifts.

The Winners

Jerry Vorpagel Jr. of Ruffsdale, Pennsylvania, a maintenance man for Westinghouse Electric, won the 2021 Derby. He estimated that unemployment at year-end 2021 would be 4.0%, within a whisker of the actual number 3.9%.

 Vorpagel “figured Covid restrictions would go down,” helping employment. But he thinks that in 2022, the economy “will probably get worse before it gets better.” He foresees continuing supply-chain snags, and doesn’t believe Joe Biden can handle the economy as well as Donald Trump did.

Two people—Lawrence Weiner of Las Vegas, Nevada and David Debo of North Huntington, Pennsylvania—tied for second. Debo, a mechanical engineer, came closer than anyone else to guessing the inflation rate. His guess was 5.6%, which was 1.4 percentage points below the actual figure. Citing the “crazy” prices for used cars, Debo fears that inflation will stay hot and the economy will “struggle” as the Federal Reserve raises interest rates to combat it. On top of that, he says, “Mr. Putin has really thrown a wild card into things” by invading Ukraine.

Weiner, who is both a real-estate broker and a real-estate investor, scored most of his points with an accurate estimate on economic growth. He said 5.9%; the actual figure was 5.7%. Twenty-eight of the 30 contestants guessed too low.

Weiner thinks the next six months will be “a roller coaster” for the economy because of reverberations from Russia’s invasion of Ukraine. Since economic sanctions will likely be the only consequence to Russia, he feels that China may be emboldened to make a move against Taiwan. Late this year, though, Weiner feels that the U.S. economy will strengthen. “Never bet against the U.S. economy,” he added.

How to Enter

There is no cost to enter the Derby, and I promise not to make fun of anyone by name. Please answer the six questions below, and provide the following: Name, address, phone (in case you win and I want to interview you, please include a weekend phone number), email address and occupation.

You aren’t required to state the reasons behind your forecasts, but I appreciate it if you do.

Send entries to me at [email protected], or John Dorfman, Dorfman Value Investments, 101 Federal Street, Suite 1900, Boston MA 02110. Entries must be postmarked or time-stamped by midnight, March 11, 2022.

Here are the questions.

1. The U.S. economy grew 5.7% in 2021. How much will the gross domestic product grow or shrink in 2022?

2. Inflation unexpectedly surged to 7.0% last year. As measured by the Consumer Price Index, what will inflation be this year?

3. The interest rate on 10-year U.S. government notes increased to 1.52% in 2021 (from less than 1%). What will it be as of the end of 2022?

4. A barrel of crude oil (West Texas Intermediate, or WTI) cost $75.33 when 2021 ended. What will the oil price be when 2022 draws to a close?

5. U.S. retail sales (including food) totaled $712.68 billion in December of 2021. What will they be in December 2022?

6. Unemployment dropped considerably in 2021, to 3.9%. What will the unemployment rate be as of December 2022?

The winner receives a plaque, which they can hang in their living room for guests and grandchildren to admire.