IAMGOLD shares surge as it exceeds H1 output, cost targets
Encouraged by the half-year results, the miner has raised its production guidance from Essakane and Westwood to 495,000-540,000 oz.
She’s a silent but influential force in the forecasting world. Momentum routinely governs views of the world, but its undercurrents also exert a lot of unseen influence. Uncertainty, rife in the economy’s post-crisis doldrums, seems to have elevated the role of momentum. Pundits examine the economy’s every twitch assiduously, looking for shifts in activity and more importantly, signs of stabilization. Is current momentum helping or hindering our ability to gauge the state of the global economy?
Few realize the actual power of momentum in economic statistics. Mid-year average growth rates are the accepted norm for reporting on most indicators. A truer measure of growth within a given year is the last figure of this year divided by the corresponding last figure in the previous year – whether quarterly, monthly, weekly or daily. However, attempts to change accepted measures in this way have been a colossal failure. As such, understanding the vagaries of the accepted method is critical.
Measuring in the accepted way increases the effect of momentum, as current-year average growth rates actually start being determined early in the previous year. In fact, for quarterly data, about one-third of the contribution to annual growth is determined before the year in question even begins. For higher frequency data, the effect is even greater. By the time a year starts, a lot can be said about the outcome of the year simply by analyzing built-in growth.
This is really handy when the economy is on a stable growth trajectory, whether positive, negative or neutral. But these days are anything but. When it comes to momentum, economy-watchers can be forgiven for being jaded. The world economy has tried and failed three times to get back on its feet again, and on each occasion, momentum led to widely-held views that recovery was in the works. These repeated false starts have diminished the credence of momentum, and boosted ‘new normal’ talk – but don’t be fooled, analysts are still watching it very carefully for its next move.
If false movement was a reason to abandon momentum, it would long since have been the loneliest of signals. Think of the commodity price shocks of the 1970s, and their (now laughable) effects on long-term forecasts. On the flipside, the two decades of low commodity prices that began in the mid-1980s led to equally bizarre downside predictions. We don’t seem to learn – pre-crisis price spikes again convinced many that we were running out of stuff, and forecasts were interminably skyward.
Well, we’re at it again. Poor economic results at the conclusion of 2012 knocked the stuffing out of momentum, and though most analysts agree that temporary effects were largely to blame, the shift has still led to a significant reduction in growth forecasts for 2013. Time will ultimately tell, but certain key numbers for the first quarter are impressive, and when released, may well reverse the current sense of alarm. Volatility and uncertainty certainly aren’t helping to clarify the picture.
Fundamental demand has a way of sorting through this. The low levels of activity that have persisted worldwide since crisis hit are actually helping the economy to get back to balance. Once the balance point is reached, true momentum will start to build – and then there will be no holding it back.
The bottom line? Momentum can lead economy watchers into frustrating and embarrassing analysis that to onlookers has the appearance of elaborate tail-chasing. Put it together with fundamental shifts in demand and supply – which are now more evident – and momentum can be your best friend.
This commentary is presented for informational purposes only. It is not intended to be a comprehensive or detailed statement on any subject and no representations or warranties, express or implied, are made as to its accuracy, timeliness or completeness. Nothing in this commentary is intended to provide financial, legal, accounting or tax advice nor should it be relied upon. Neither EDC nor the author is liable whatsoever for any loss or damage caused by, or resulting from, any use of or any inaccuracies, errors or omissions in the information provided.
