Some years ago, when it was pointed out that City analysts had, for more than a year, consistently called the path of UK interest rates wrongly, a senior economist working for a commercial bank shrugged it off. The inaccuracy of the forecasts did not really matter, he said, because they still gave dealers “something to trade on”.
Economic data provides “something to trade on”, month in, month out. Figures on growth, inflation, employment, prices, retail sales and the rest, pouring forth from America’s Bureau of Labor Statistics and Bureau of Economic Analysis, from Britain’s Office for National Statistics, from Eurostat and elsewhere.
And trade they do, although less flamboyantly than in the days of open-outcry dealings, when dealers in striped jackets would fly into a frenzy at the announcement of US trade deficits or Japanese surpluses.
Indeed, the lengths to which some traders have gone in the past to obtain official data a few moments before their rivals have strayed into illegality, certainly in the UK, with allegations of insider dealing.
It is deplorable, of course, but it does at least suggest that the traders concerned see a real value in the figures. But are they right to do so?
The argument against trying to trade the economy, as opposed to trading individual assets or asset classes, would start with the fact that, in the absence of inside information or of any special insight into the economic issues in question, you would be trading on the same data as everyone else and probably reacting in the same way. That is not how to generate good returns.
These are not unusual happenings.
A third reason not to try trading the economy, is that the figures are all backward-looking, by definition. Does it really help a trader to know where the British unemployment rate stood a month ago?
Finally, there is the whole question of effort and reward. A trader can build up knowledge and expertise regarding one or more shares, or currencies, or commodities. But the national and global economy is a huge subject that can defeat university professors and professional economists.
Timing the exit
What chance does a trader have in trumping their efforts?
The response from those who favour trading the economy would pick up the first point and turn it round. What does it matter if you react to the data in the same way as everyone else? If “the trend is your friend”, why should it matter?