It’s Darkest Before The Dawn: Economic Predictions for 2013

Darkest before the Dawn.jpg

“The story the data tells us is often the one we’d like to hear…” Nate Silver warns in his first book, The Signal and the Noise: Why So Many Predictions Fail – But Some Don’t.  It is good counsel for those of us who make predictions and those of us responsible for acting on the insights of others to be wary of data or conclusions supporting our prejudices and preferences.

I fancy myself an amateur futurist.  I take great pleasure in applying what I read, watch on television and see in my practice to “looking around corners” and guessing what is coming next.

Making predictions is a natural output from environmental scanning and a prerequisite for scenario development.  In 2012, I did remarkably well, correctly predicting the presidential election, the Affordable Healthcare Act (Obamacare) Supreme Court decision and the top grossing movie of the year.  Read all of my Predictions for 2012 … I share my predictions with the hope others will find them useful or at least thought-provoking.

Darkest before the Dawn…
2013 will be a pivotal year for the global economy, our country, and most organizations, but to continue to borrow from Silver’s analogy, it will be a “noisy” year with pundits pointing in every direction and data available to support any hypothesis.

I believe while 2013 will start with a dark political cloud, the pent-up economic demand from four years of uncertainty will break through and lift the economy and those organizations poised for growth.  The question I am asking my clients is – will your organization be able to take advantage when the economy “suddenly” takes off?

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Economic Predictions

Unfortunately, our economic fortunes are inescapably tied to our political providence.  In the U.S., we have institutionalized “gridlock” at the federal level with the Presidency and Senate controlled by the Democratic Party and House of Representatives held by the Republican Party.

This deadlock has held the economy hostage.  While big-ticket items like tax and entitlement reform get most of the media attention, appointments to federal agencies sit dormant clogging our court systems, prolonging enforcement actions, and delaying rule-making, which adds uncertainty to an already insecure world.

As an example, there are currently 77 federal judicial vacancies, 9% of all judgeships.  The real problem is only 33 have pending nominations and 27 vacancies (35%) are defined as “judicial emergencies”.  

This deadlock was the underpinning of my 2012 economic predictions. Political theatre extracts a high price.  I would contend that business can survive (if not thrive) with any regulations but cannot operate in an environment of unknowns.

With the re-election of President Barack Obama and a fractured Republican party, resolution is coming.  It will not be quick, congenial, or orderly.  At times, the cure may feel more painful than the disease.  The end-of-year “fiscal cliff” drama was just a teaser of what is to come, but by May, the worst will be behind us and economic recovery will be able to take root.

  • New York Stock Exchange will end the year above 14,000
  • The unemployment rate will dip below 7.2%
  • Real wages will begin to rise by the 4th quarter

Political Predictions.jpg

Political Predictions

As mentioned above, the first four months of 2013 will be politically explosive, which is good business for network journalists, talk radio hosts and internet bloggers, but that is about it.

After Benghazi testimony and prolonged confirmation hearings, legislation that eventually passes both houses of Congress and signed by the President in 2013 will include:

  • Debt Ceiling
  • Tax Reform
  • Medicare/Social Security Reform
  • Immigration Reform
  • Banking Reform

What does not pass:

  • Gun Control
  • Health Care (revisited/repealed)
  • Climate Change
  • Campaign Finance
  • Federal Voter Identification

Political appointment confirmations remain slow, and there is at least one Supreme Court nomination fight.

The backdrop for vicious mid-term elections in 2014:

  • Congressional approval remains a dismal ~10%
  • President Obama approval remains ~50%
  • Vice-President Biden approval ratings surge to ~60%
  • Supreme Court approval ratings rise slightly to ~50% 

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Legal Predictions

Supreme Court Decision Opinions released in June 2013:

Fisher v. University of Texas at Austin (Affirmative Action)

Affirmed, University of Texas at Austin’s admission policy is narrowly construed and serves a legitimate state interest. 5-4 decision written by Justice Ginsberg.

Windsor v. United States and Hollingsworth v. Perry  (Same Sex Marriage)

Split decision in a sharply divided court with multiple opinions.  Defense Against Marriage Act (DOMA) will be found unconstitutional.  It is in violation of Article IV, Section 1, the full faith and credit clause.   7-2 decision written by Justice Kennedy.  The California, Proposition 8 portion of the case will not be as clean.  The court upholds the state’s right to regulate marriage.  Can a state repeal a “constitutional right” once conveyed?  “Yes” but not by a ballot initiative so de facto California recognizes same sex marriage. (5-4)

 The Allure of Big Data

The Allure Of Big Data

“For better or worse, humans worry about what’s ahead.  Deep inside, everyone recognizes that that purpose of building models and creating theories is divination: foretelling the future, and controlling it,” writes Emanuel Derman, physicist turned Wall Street analyst, in his book Models. Behaving. Badly.: Why Confusing Illusion with Reality Can Lead to Disaster, on Wall Street and in Life.

Silver and Derman, in their respective books, highlight the inherent challenges with forecasting, predictions, planning and managing “risk.”  Since the dawn of man, in our deep human desire to “know” the future, we are often led down the primrose garden, sometimes by charlatans, sometimes by mystics, sometimes by scientists, and some would claim always by “management consultants” (like Marty Kaan).

The latest craze in prognostication is “Big Data” and a belief that with enough information and smart enough people, we can know and, as Derman alludes, control the future.  The conventional wisdom states the missing key to unlocking “Big Data” will be talent.  According to a McKinsey Global Institute study, “the United States alone faces a shortage of 140,000 to 190,000 people with analytical expertise and 1.5 million managers and analysts with the skills to understand and make decisions based on the analysis of big data.

But “Big Data” is not entirely new; its roots lie with Frederick Taylor’s scientific management which has gone in and out of favor over the last century.  Like Taylor’s work, “Big Data” can have a Hawthorne Effect, the mere act of measuring or creating a model changes people’s behavior, which in turn creates a host of new challenges.

From my professional experience analyzing human capital data, I see two common mistakes.  First, a belief that creating Key Predictive Indicators (KPIs) and other forward-looking metrics is a one-time exercise that can derive universal truths.  The reality is a data set captures experiences from a specific time frame and context.  As the underlying context changes, so will the interpretation of the results.  Second, and more fatal, is a deep desire that the models or data will make decisions for us.

Nate Silver highlights this second challenge in his book and advocates to minimize the intrinsic challenges; the analyst should analyze and the decision-maker should decide.  By bifurcating duties, you can minimize self-deception and gain the competitive advantage of insight.

Side-note: If your organization wants to start to exploit its human capital data asset or is struggling to turn information into insight, please feel free to reach out to me directly.  I am delighted to share my experience and assist organizations in becoming more sophisticated data consumers.

Just For Fun, My Pop Culture Predictions!

 Academy Award Predictions

85th Annual Academy Awards (Airing On February 24, 2013)

  • Best Picture, Lincoln (9 movies nominated)
  • Best Director, Ben Affleck
  • Best Actor, Daniel Day-Lewis
  • Best Actress, Jessica Chastain
  • Best Supporting Actor, Robert De Niro
  • Best Supporting Actress, Sally Field
  • Best Original Screenplay, Zero Dark Thirty (Mark Boal)
  • Best Adapted Screenplay, Lincoln (Tony Kushner)


Babies, Babies, Babies

 Baby Quincy Downey

Baby Quincy Downey

  • Jessica Simpson has another girl in April.
  • Catherine, Duchess of Cambridge (Kate Middleton) has a boy in June whom they name Spencer in honor of the late Princess Diana.
  • Kim Kardashian has a girl she names something like K’Asia or Kayenne
  • Jessica Biel will announce she is pregnant before the end of 2013, but Jennifer Aniston will not … the tabloids will speculate ad nauseum about both.

On The Big Screen

 Movie Predictions
  • In a year of sequels, super heroes and super hero sequels, 2013 U.S box office disappoints movie goers and executives with the lowest cumulative receipts since 2008, unable to break the $10 billion benchmark.
  • Iron Man III is easily the highest grossing film of 2013.  It does not crack the top 10 of all time.
  • Superman, Man of Steel is a domestic failure and called this year’s “John Carter” – although it does well overseas (like the real John Carter).
  • Johnny Depp’s Lone Ranger movie is critically panned and also a domestic bomb.
  • Original comedies over-perform expectations and are the financial winners led by Vince Vaughn/Owen Wilson, The Internship.

And Finally... In Sports

 Sports Predictions
  • NHL “saves” the 2012 -2013 season and is back before February 1st.
  • Leading the Denver Broncos, Peyton Manning wins a second Super Bowl ring tying Eli’s championship total by defeating the Atlanta Falcons.
  • No Cinderellas this year.  :(  The NCAA Final Four includes all storied programs: Duke, Indiana, Louisville, and Kansas.  Three-seed Louisville hears “One Shining Moment” on April 9th.
  • My beloved Chicago Cubs will see post-season play (one game) but surprisingly with everything wrong in Washington, DC, it is the Nationals who win the Fall Classic against the Toronto Blue Jays in six games.