In 2020, the U.S. economy offered a smorgasbord of mixed signals. Crashing growth and demand in the second quarter led to a massive fiscal stimulus. Bullish stock indices and housing markets rode uncertain labor markets. Even after tremendous growth in Q3, the economy remained ~3% smaller entering Q4 than it was in January 2020. As investors and analysts, we struggled to look forward when the floor keeps moving.
Consider how forecasts of U.S. housing markets changed throughout 2020. The figure below summarizes housing starts forecasts from multiple sources with Forisk’s Composite Outlook by quarter. We started 2020 expecting ~1.35 million housing starts and we ended 2020 expecting ~1.35 million, but we walked through the valley on the way. Consensus housing numbers fell ~17% from Q1 to Q2 and increased ~14% from Q3 to Q4.
The great explorers and navigators depended on the stars to fix their positions, even as their wandering barks rode the waves. In the forest industry, we rely on physical facts, associated with demographics and forest supplies and mill capacities, to set our models. We aggregate facts to identify trends and derive insights. Then, when gathering market intelligence and transactions for the Forisk Market Bulletin, we double check key risks and assumptions. In this way, we work to leverage data and logic to develop projections.
Finally, we keep track of our results to evaluate performance over time. Through back-testing, we learn to separate the driving factors from the noise in order to make the best use of our available data.
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