Economists – not the best recovery forecasters

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This post is a guest contribution by Rebecca Wilder*, author of the News N Economics blog.

I wrote an article some time back about the pathetic recovery expected by economists. In that article, Spencer (of Angry Bear) gave the following comment (please read the entire comment, as Spencer’s argument is not represented here in full):

“Maybe this time will be different and we may actually have a weak recovery, but just remember that economists have a long and repeated history of underestimating the strength of recoveries.”

I myself did not know that economists have a very good track record of undershooting recoveries. However, I did a little digging through old files at work and found Blue Chip forecasts around the end of the 1981-1982, 1990-1991 recessions, and a DRI forecast (now known as Global Insight, couldn’t get Blue Chip) at the end of the 2001 recession (recession end determined much later by the NBER). The forecast way undershot the actual growth rate for the first year of recovery in two of the last three recessions – by 2.3% in the 1983 recovery!

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Ahem. Don’t be too surprised if they mess it up again!

Source: Rebecca Wilder, News N Economics, August 15, 2009.

* Rebecca Wilder is an economist in the financial industry. She was previously an assistant professor and holds a doctorate in economics.

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3 comments to Economists – not the best recovery forecasters

  • Paul C Sandison

    Interesting in itself but please tell me which economist ever claimed to pinpoint anything? At any point in time there are just too many factors which an economist cannot know. With the state of knowledge in economics at present an economist can only give a forward view, based on those factors known at the time and the selection of those factors which he or she deems to be relevant.

    Economics is not a science, but a discipline. ‘For every monk, a thousand religions’ comes to mind.

    Having said that, the average predictions on the graph above were all on the right side of the baseline. If they had been in negative territory, i.e. predicting negative growth instead of positive, one could claim with some gravity that economics is no more than guesswork and economists cannot predict anything. But if the above graph is correct then there is at least some predictive power.

    Also, in the graph the average apparently overestimated the strength of the recovery in 2002/3. So, two cases of undershoot and one of overshoot. Does that prove anything? Please may we have more nuances, lest the discussions sink to the abysmal level of the screaming and partisan non-knowledge on the CNBC Squawk Box.

  • [...] Economists – not the best recovery forecasters – Rebecca Wilder Does this mean we should be bullish? [...]

  • Jeffrey DePue

    This recession is much more than a standard inventory related recession. Differences are:

    1. Credit related
    2. Global in nature – not just confined to a few nations.

    Rogoff’s study of such recessions indicate that depth and duration of downturn is much larger than normal and that recoveries from such situations are typically quite muted.

    Think about it for a moment: much of the growth in the US that occurred from 2002 through 2007 was due to consumption fed by home equity withdrawals and spending, and that will not be present during this recovery. What will US consumers be able to use as collateral to borrow? Not houses, unlikely equities. Recovery will be muted.

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