Nearly seven months since the coronavirus pandemic changed the world we knew, state economists are still grappling with how to produce reasonably accurate forecasts to plot the trajectory of Maine’s economic health.

The scale and speed at which the pandemic changed economic conditions forced state economists to play catch-up using incomplete and, at times, inaccurate information.

While people’s behavior and spending patterns have become more predictable since business shutdowns and stay-at-home orders this spring, much about the future is unknown. Will the pandemic get worse over the winter? Will the results of the presidential and congressional elections bring significant policy changes? Will more federal stimulus funds materialize? When will a vaccine be available? Will it work? How many will take it?

“I think there are still many pieces of uncertainty,” said Maine State Economist Amanda Rector. “Even though it feels like we have become more accustomed to new circumstances, there is still so much we don’t have answers for.”

Maine’s biannual economic forecast is compiled by a commission of five independent economists with help from the state economists. Commissioners take a standard set of variables – employment, personal income, inflation and corporate profits – into account for each report, as well as information from key sectors, forecasts from two national firms and previous reports.

The biannual forecast is used to determine the state revenue forecast, which, in turn, informs the state budget proposed by the governor.

The forecasting commission released its first report this year in February, about two months before the economy went into deep shock. Commissioners returned in June for a rare, off-cycle forecast and made significant revisions – income from wages was slashed from a 4 percent increase to a 5 percent decrease in the new report, with significant reductions to earlier projections through 2025.

Even the revised forecast is unlikely to be fully accurate. Some of the data commissioners typically use – employment and sales data especially – have been inaccurate or lag months behind, giving forecasters an incomplete picture of the present.

To fill in the gaps, commissioners have turned to new data sources, including a real-time economic tracker developed by Harvard and Brown universities, a “back-to-normal index” from CNN and Moody’s Analytics, and traffic statistics from the state Department of Transportation and other sources.

“A lot of these new data sources have sprung up in response to the fact that traditional data is not in the place we’d like it to be,” Rector said. “There is certainly still a tremendous level of uncertainty, but we have gotten through the initial phase of not even really knowing where to look for data in some cases.”

The way the virus acts, and whether people keep up with precautionary measures such as social distancing and wearing masks, also matters. No one has lived through a pandemic like this in a century, and there is no established playbook for predicting its trajectory.

“The assumptions commissioners are making are not just economic, they are also public health assumptions,” Rector said. “So much of what happens to the economy is based on the force of the virus.”

Predicting the state’s future revenue is equally difficult. This spring, the Maine Legislature’s Revenue Forecasting Committee predicted the state would end its budget year $200 million in the red, but in September that was revised to a $90 million shortfall.

State revenue was expected to be down $1.3 billion over the next three years based on the committee’s August forecast. But sales data through the summer have shown surprising spending patterns and better state revenue than expected, said Deputy Commissioner for Tax Policy Mike Allen.

“It’s been said 1,000 times already, but it is true – this is a unique recession,” Allen said.

Spending on building materials and high-value purchases such as automobiles, usually the first victims of an economic downturn, actually have surged since the spring, Allen said. Services, especially hotels and restaurants, which typically do better in a recession, have been crushed.

“It is hard to judge how this is going to affect people’s behavior, their purchasing,” Allen said. “One aspect of this recession that is completely different is which sectors have been affected.”

Again, there’s no playbook to consult for a glimpse at what will come next. The Great Recession, triggered by an implosion of the lending industry, was severe but followed a predictable course, Allen said. In this case, the future is much harder to foresee.

“You don’t have any control over the virus,” Allen said. “It is like a natural disaster – you have to take a guess.”

Both of Maine’s top economic forecasting bodies have the flexibility to reconvene and make further revisions if economic conditions change seismically, and earlier forecasts become obsolete.

“Forecasting is obviously challenging when you are not in a pandemic – you are trying to project all these different economic factors and conditions in the economy, not just what is going to happen this year, but what is going to happen three to four years from now,” said state Consensus Economic Forecasting Commission Chairman Ryan Low.

Outside the course of the virus, major political and policy questions loom in the background. The outcome of next month’s general election could radically change federal policy approaches. The uncertain future of a new stimulus package could also have profound effects – the relative strength of the economy this spring and early summer was propped up by a massive influx of federal cash, including an added $600-per-week unemployment benefit and the Paycheck Protection Program for small businesses.

“We have these big unknowns out there,” Low said. “That is the complicating factor to this forecast compared to 2008.”

Forecasting is always risky, but in normal times that risk is tied to economic circumstances, said Charles Colgan, a former state economist and professor emeritus at the University of Southern Maine’s Muskie School of Public Service. Interest rates could change, or fiscal policy could shift. During the pandemic, however, everything is tied to how the virus functions – it is an external factor that doesn’t follow the whims of the economy.

“I’m not sure that it is possible to do anything right now that isn’t subject to immediate revisions, because everything is moving so fast,” Colgan said.

With that built-in unpredictability, the best forecasters can do is use the limited data and experience they have to come up with a best guess.

“This is completely outside anything economists can do,” Colgan said. “Nobody knows enough; there’s no track record.”

Related Headlines


Only subscribers are eligible to post comments. Please subscribe or to participate in the conversation. Here’s why.

Use the form below to reset your password. When you've submitted your account email, we will send an email with a reset code.