Traditional economic indicators have 'tanked': Economist

Speaking at Activam Group's act Conference today, AMP deputy chief economist Diana Mousina said economists can no longer rely on traditional economic indicators to make accurate predictions.

Mousina noted that many economists have been predicting a recession in the US for around 12 months, based on the traditional indicators, but she said those data points aren't as useful in a post-COVID world.

"Some of the indicators that we used to think of as lagging or not important indicators are actually much more important now. The leading indicators have tanked," Mousina said.

"If you look at countries like the US, their leading index is in line with a recession, and it has been in line with a recession for about 12 months. So, this goes to the point that old school indicators do not work anymore in the current cycle that we're in."

Mousina pointed to the yield curve, which has been inverted for 18 months in the US and would have traditionally indicated a recession last year.

"That's why every economist was out there saying that [there would be a recession], because if you looked at the indicators, that would tell you that the US should be in a recession," she said.

"Then you have other indicators, for example, in Australia, the population growth rate or changes to government policy, well, that's actually more important than ever. Why did the housing market do what it did in the last two years?"

Mousina said going forward, economists need to look at other data sets to change their predictions because the landscape has changed since the pandemic.

"Australia's population growth went up by 650,000 people last year. That had massive implications for infrastructure projects, the pipeline of work that had to be done in infrastructure and residential projects," she said.

"That's not really a traditional indicator that we would look at, but actually it's incredibly important. Or when you look at government caps on the number of students coming in, or these programs around how many people are allowed to enter Australia.

"Those things are more important now than ever. So, it depends on the cycle."