Reliable economic forecasts have proved to be very unusual.
That is one reason why economists as a profession are not highly regarded. For example, President Truman once exclaimed, “Give me a one-handed economist! All my economists say, on the one hand, on the other.”
It must be acknowledged that it is difficult to separate cause and effect of forecasts. Also, the economy is constantly changing, so what was once applicable previously no longer may be relevant. Above all, however, data by the governments later on were revised after their release, radically destroying their value.
The most recent recession forecasts were completely without merit. In 2007, just prior to the most severe economic contraction in a generation, a quarterly pool by the Federal Reserve Board of Philadelphia stated that a recession was “relatively unlikely”.
That same year a survey of Professional Forecasters anticipated U.S. GDP growth of between 2 to 3 percent, and that it would rise to 3% in 2008. Instead it declined in both years, 2% in the later year.
Forecasters often look at previous economic contractions and assume little volatility; a continuation of more of the same.
A survey of professional economists over a period of time was no better than any random prediction. Not only were they of little value, but individuals remained grouped around general projections as few wanted to be too different.
The media usually reports the forecasts of principal economists, a summary of the index of the Leading Indicators, typically considered to be a harbinger of things to come.
Yet, there is an old adage that Leading Indicators predicted nine of the last six recessions.
Clearly, some forecasters have a long-term bias, either optimistic or bearish all the time, so sooner or later they would be vindicated. Aggregate forecasts are better than individual ones, a feeble evasion, but even they have been quite poor and unsatisfactory.
In recent decades statistical models were all the rage. The Federal Reserve of Boston stated the trouble is that forecasts were constantly being adjusted, lessening their accuracy.
With all forecasts many factors have to be reviewed. Certainly there are risks inherent in making predictions.
Perhaps the best forecasts, like those of a medical diagnostician, should be based on personal observations, like gut feelings.