Challenges Predicting the Path of the Economic Recovery
By Will Zimmermann
It is incredibly hard to predict the future, especially the future of the economy. How would I have predicted the economic future earlier this year?
In January 2020, I would have warned of the potential of an eventual correction in the market or a potential recession on the horizon with no mention of a looming global pandemic. After all, the stock market in January was at an all time high and had been consistently gaining for over a decade. The longest bull market on record couldn’t last forever and certainly would leave many firms’ equity dramatically overvalued.
In March, I would have given a starkly different forecast of the economy, for obvious reasons. With the pandemic dramatically touching every aspect of economic life, the impact on the economy would be severe. This forecast would have given cause for alarm about a potential deep recession and perhaps even a collapse in the credit market due to falling corporate earnings.
Writing this in June of 2020, however, my predictions perhaps fall somewhere between the two futures outlined above. I’m more pessimistic than I would have been in January but also more optimistic than I would have been in March. With the release of additional data, the prospects for America’s economic recovery seem more promising and markets have nearly risen to pre-pandemic highs. While such a quick rally is probably premature, markets are also much more oriented to future earnings so this could signal that corporate earnings past the next few months still look relatively healthy.
What does this all mean for the future of small businesses? As can be seen, it’s hard to place a lot of stock in prediction and it will always be severely lacking compared to hindsight. The next few months will have many hopeful and pessimistic headlines. The reality is that these headlines won’t be as helpful as they seem. Businesses will recover when consumer spending returns. Some consumer behavior will eventually return to normal and some of it will be reshaped by the quarantine and pandemic. This will vary from industry to industry and determine the future prospects of many small businesses.
Predicting the future is hard, particularly when it comes to complex systems like the economy
Near real-time data on the state of the economy - here and here