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Unique 'T-bill index' predicts drop in output for '82

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Question: Who are the best economic forecasters? Answer: A. Economists who work for presidents. B. Business leaders.

C. Econometricians with their complex models.

D. None of the above.

The answer, Charles E. Babin believes, is "D." The correct answer, he says, is: People who forecast the economy with their checkbooks.

Among these people are investors in the US Treasury bill futures market at the Chicago Mercantile Exchange. By tracking how much the bid for the future price of T-bills, Mr. Babin and the computers at H. C. Wainwright & Co., Economics, A Boston economic consulting firm in which he is a partner, have been projecting the US gross national product -- the nation's total output of goods and services -- one year in advance.

On average, the futures market has forecast within about two-thirds of a point the actual T-bill rate since trading began in 1976, Babin notes. And since that year, he says, the Wainwright forecast of the coming year's GNP, based on this trading and other indicators, has not been off by more than one percentage point.

Last year, for instance, the projection was for a 1 percent drop in the nation's GNP; the actual growth was zero. The year before, both the projection and reality came in at plus 3 percent. The forecast for this year is for 2.9 percent growth.

But for 1982, while Reagan administration officials are talking about a 3.4 percent growth in GNP, the Wainwright computers see a drop of about 2 percent. Even allowing for a 1 percent margin of error, Babin says, that still means a GNP growth of minus 1 to 3 percent.

"The markets," he states, "are saying that the economy next year is going to have a minus sign on it."


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