Test your forecasting talent

Very few people foresaw the Great Recession of 2007-2009.

That's really no surprise. Most economic forecasters fall on their faces at turning points. For example, in January 2008 only five of 62 economists surveyed by Bloomberg News predicted a recession. The consensus was that the chance of a recession developing within 12 months was 40 percent. It was already under way.

Can you do any better than the experts? One way to find out is to enter my annual Derby of Economic Forecasting Talent (DEFT), which I am now reviving after a few years of dormancy.

Some of the previous contests were won by financial professionals, including a Fed official in Richmond, Va., and money managers in Chicago and New Jersey.

Other winners were amateurs. For example, the victor one year was a recent graduate of the University of New Mexico who hadn't yet found her first job. (At least she was an economics student, not an English major.)

So far, no economist has taken first place, though quite a few have entered. The number of entrants per year has ranged from about 40 to more than 100, including people in all walks of life from about a dozen countries.

Why can amateurs fare as well as they have in the contest? Experts in almost all fields make mistakes frequently. This is not because they are inept poseurs, but simply because forecasting complex systems is incredibly difficult.

Researchers have studied cardiologists analyzing electrocardiograms, racetrack bettors handicapping Thoroughbreds and meteorologists forecasting storms. Their studies show it is often difficult even for knowledgeable people to outperform a simple computer model.

The DEFT contest itself provides strong evidence of the challenges of forecasting. Contestants have often missed the boat whenever a key aspect of the economy veers from trend. For example, in 2003-2004 every single contestant underestimated the rise in the price of oil.

Here are some questions you must answer to enter the DEFT contest for 2010-2011.

Question 1: Economic Growth. U.S. gross domestic product in the fourth quarter of 2009 was growing at an annualized rate of 5.7 percent. Growth was 2.2 percent in the third quarter and had been negative in five of the six previous quarters. What will be the pace of economic growth in the fourth quarter of 2010?

Question 2: Inflation. The Consumer Price Index rose 2.6 percent in the year ended Jan. 31, 2010. Twelve months before that it was flat. What will be the comparable figure as of Jan. 31, 2011?

Question 3: Interest rates. The interest rate on 10-year bonds issued by the Treasury stood at 3.58 percent at the end of January, up from 2.84 percent a year earlier. What rate of interest will 10-year Treasury bonds pay as of Jan. 31, 2011?

Question 4: Oil prices. A barrel of crude oil (West Texas intermediate, spot price) traded for $72.89 at the end of January, up from $41.68 a year earlier. What will be the price of a barrel of oil on Jan. 31, 2011?

Question 5: Retail sales. U.S. retail stores rang up $356 billion in sales in January, compared with $340 billion a year previously and $376 billion two years earlier. Rounded to the nearest billion, what will be the monthly total for retail sales in January 2011?

Question 6: Unemployment. The unemployment number is crucial in affecting public mood, consumer confidence, political fortunes and quality of life for many Americans. As of Jan. 31, the official unemployment rate was 9.7 percent. The comparable figures were 7.7 percent in January 2009 and 5 percent in January 2008. What will be the unemployment rate as of Jan. 31, 2011?

To enter, e-mail me at dorfman1@bloomberg.net, providing your answers to the six questions above, plus a phone number and e-mail address to allow me to contact you if you win. If you do not receive an acknowledgement of your e-mail entry within 72 hours, please resend it.

All entries must be time-stamped by midnight on March 15, 2010.

The contestant with the most accurate answer to each question receives three points. Second place gets two points, third place one point. While the theoretical maximum is 18 points, a score of four to six points is often enough to win.

The winner will receive a trophy from me, plus bragging rights at home and at work. Good luck.

« Money

Share