Interview: Ian Shepherdson discusses his most accurate economic forecasting honor from The Wall Street Journal

MELISSA BLOCK
All Things Considered (NPR)
01-02-2004
Interview: Ian Shepherdson discusses his most accurate economic forecasting honor from The Wall Street Journal

Host: MELISSA BLOCK
Time: 9:00-10:00 PM

MELISSA BLOCK, host:

This is ALL THINGS CONSIDERED from NPR News. I'm Melissa Block.

Twice a year, The Wall Street Journal asks a team of economists to predict the economic future. They forecast what will happen with the jobless rate, GDP, the value of the US dollar, inflation. For the second half of 2003, the expert who came closest to the actual numbers is Ian Shepherdson. He's chief US economist for High Frequency Economics in Valhalla, New York. But Mr. Shepherdson actually lives and works in Corbridge, Northumberland. That's at the very northern tip of England where it meets Scotland. And he joins us now from the BBC studios in Newcastle, which is not far away. Thanks for being with us.

Mr. IAN SHEPHERDSON (Chief US Economist, High Frequency Economics): Thank you for having me.

BLOCK: Can you describe where it is exactly that you live and work and do this forecasting?

Mr. SHEPHERDSON: Well, I'm right in the most rural northeastern county of England, about 30 miles south of the border with Scotland, and the town I live in was founded by the Romans a couple of thousand years ago, and it's still here, slightly bigger than in their day.

BLOCK: So it makes no difference in terms of forecasting, I suppose, whether you're there or at a yurt or in the desert, so long as you have a computer and a phone and can make those kinds of predictions.

Mr. SHEPHERDSON: As long as I can get a decent Internet connection, it really doesn't matter where I am. It's all a question of technology. A few years ago, I couldn't do what I do, and you pretty much had to be where you were forecasting about. But to do it now from the UK is very straightforward.

BLOCK: And this go round, you came out on top. What's your methodology?

Mr. SHEPHERDSON: Well, I take the very closest interest in interest rates above pretty much everything else. And I've been looking at the very accommodative stance of interest rates that the Fed had put into position. And I began to turn quite optimistic about the economy way back in the summer of 2001. Of course, my optimism was then dashed by 9/11. But after that, of course, the Fed cut rates even further, and it began to look to me that if we could just get a clear run at things without any more external shocks or problems, then the economy would strengthen really very dramatically. Unfortunately, there were two more shocks, because in the spring of 2002, we had the corporate scandals, the Enron and MCI and various others. And then, of course, in the early part of '03, we had the war with Iraq. So even though we had this very, very favorable interest rate environment that the Fed had put into position, it didn't really get a chance to work properly until the fall of Baghdad. And pretty much as soon as that happened, all the numbers started turning up, and they've continued to move higher ever since. And the very latest data are spectacular.

BLOCK: Are there factors maybe that other forecasters look at that you just think are rubbish?

Mr. SHEPHERDSON: Well, I wouldn't quite go that far, but I tend to be fairly skeptical about anecdotal evidence, because one of the things I learned moving from a small country to a big country is just how huge the US is and how very carefully you have to be in interpreting anecdotal evidence about how busy the shopping mall was or how your friend who's in a particular business is doing this year. Because unless you're talking to thousands upon thousands of people and visiting thousands of stores every day or every week, you can't get a flavor of a country as big as the US. You could probably do it for Andorra or Luxembourg, but when you're covering a country with nearly 300 million people, you really have to place your faith in the big numbers and the big surveys that try and capture a flavor of the whole country.

BLOCK: Well, you've now been asked to turn in your forecast for 2004. Can you give us some clues of what you think's going to happen?

Mr. SHEPHERDSON: Well, I'm even more optimistic about '04 than I was about '03. I think all the numbers are likely to strengthen pretty much across the board, across the whole country. I think manufacturing is going to have a very good year, and exporters are going to have a very good year. I think we'll see a big drop in unemployment, which will be very good news. And I think that we'll see the stock market strengthening very substantially. The downside, of course, is there has to be a price for this, and the price is going to be much higher interest rates at the end of this year than we had at the end of last year. But I would view that as the price for success rather than anything we should be depressed about.

BLOCK: Ian Shepherdson of High Frequency Economics lives in Northumberland, England. He was the most accurate forecaster in The Wall Street Journal's most recent forecasting survey.

Mr. Shepherdson, thanks very much.

Mr. SHEPHERDSON: Thank you.

Content and Programming copyright 2004 National Public Radio, Inc. All rights reserved.