95% of US economists missed the last recession AFTER it had already started

[powayseller]

Economists are lousy at predicting recessions. Therefore, don’t use this line on me, because it’s totally meaningless, “Schahrzad, how can you possibly be right about a recession, when only 1 or 2 other economists are even saying it can happen?” Well, guys, it’s because economists overwhelmingly miss recessions. Thus, we are right on track with this next recession, because once again, very few people are even independent and insightful enough to realize it is happening.

“These days I get asked daily in interviews and talks: “How do you explain that the market consensus is still so far from your recession call for 2007? Why does almost everyone on Wall Street believe that there will be no recession? What do you know that they do not?”

Actually I do not know anything that they do not; we use the same public information and, of course, I have no inside information. My explanation of the consensus view about a “soft landing” is that there is a massive and systematic bias in forecasting recessions. Take the following telling example:

in March 2001 in a survey 95% of US economic forecasters predicted that there would not be a recession in 2001; 95% of them! Too bad that the recession had already started exactly in March of that year!.

So, even as late as March of 2001 when it was totally obvious that the economy was spinning into a recession 96% of all forecasters were still living in the delusional dream that the US would avoid a recession. This even after the tech and investment bubble had totally busted in 2000; even after the 2000 Chrismas sales were a disaster and growth was already crawling down to zero by the end of 2000; this even after the Fed went into a panic mode on January 2nd 2001 and cut the Fed Funds rate in between FOMC meetings because of the collapse of Chrismas sales and the collapse of the NASDAQ that day was clearly signaling a coming recession. There was systematic delusional bullish bias among forecasters, among investors and in the Fed.

The failure of professional forecasters in predicting recessions – there are always way overoptimistic and systematically miss the turn downward of the business cycle – is well known and documented in scholarly studies. Prakash Loungani – who has written several research papers on this systematic bias – summarized the results of his 2001 paper on this forecasting bias with the following scathing remarks: “The record of failure to predict recessions is virtually unblemished”. That sums it all. Why this systematic failure? Because there are systematic biases and financial conflicts of interests in the economic forecasting business. Let me elaborate on these. ” – Roubini

You need to pay to read the rest…

Roubini is right; a recession is coming in the next 6 months. I hope I will be as accurate in forecasting the boom cycle that will follow, eventually…

Schahrzad Berkland

[PerryChase]

powayseller, William Wheaton, professor of economics and former director of the Center for Real Estate at MIT, is also an economist prediction a real estate crash. I’ve not read much on him so I’m not sure he’s a realist like Roubini.

[PerryChase]

duplicate

[CAwireman]

The conflict of interest point that Roubini makes is key.  

 "Its hard to believe something when your occupation depends upon you not believing it" Mark Twain

[Roman]

In today’s real estate poll from CNN Money, here are the results to the burning question (these is online now)

1. How bad will the housing market get?

Crash 22%
Regional bubbles will burst 46%
Gradual orderly slowdown 25%
Too early to say 7%

total responses to this question: 12298

Source: http://money.cnn.com/POLLSERVER/results/27182.html

[sdduuuude]

Just for the record, I think there is a recession coming. I don’t know how we could possibly avoid it.

I just think the early 2007 timeline is a bit early, given the painfully slow speed at which this bubble is deflating. Not only does housing have to come down alot further, but the effects of that have to move throughout the economy. I just think it will take time – very late 2007 or early 2008, possibly highlighted by a very nasty 2007 holiday retail season.

Remember – we are boiling the frog alive, here. Not dropping it into a pot of boiling water.

Also, San Diego is on the front of the housing bubble deflation. The rest of the nation has to experience the economic pain in order to make the nationwide numbers say “recession.” SD may hit recessionary conditions earlier, but the national numbers should lag SD by several months.

[powayseller]

Rouhini’s recession call is based on a repeat of what happened to GDP in the last recession. We went from 5.6% in Q1 to 2.9% in Q2. He expects this slowdown to continue, so that by Q1 07, this GDP growth is negative. This same trend happened in 2000: we went from approx 5% to approx 2% growth qoq, and then the next quarter we had negative growth. It took only 2 quarters to move from over 5% GDP growth to negative GDP growth. I was also surprised that it can happen that quickly.

A recession is negative qoq growth in GDP for at least 2 quarters.

I agree that the slowdown will exacerbate after the recession offically begins, so this is probably going to be one of our longer recessions.

[powayseller]

HSBC warns of recession ahead.

Funny, how these recession calls seem to increase in number as we get closer to the recession. These guys should have made this announcement a year ago, when it was really more of a forecast; now it’s an obvious conclusion, since the slowdown is already happening.

[bigtrouble]

In march 2001 95% of economist predicted no recession.

By Sept. 12th of that year, many had changed their minds.

[Author]

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