According to the Wall Street Journal's Semiannual Economic Forecasting Survey of 60 leading economists, only one, James F. Smith of Western Carolina University and Parsec Financial Management, expects to see a recession -- two or more quarters of declining gross domestic product -- in the U.S. this year.
That is despite the fact that three separate indicators have emitted strong warnings of an impending economic downturn.
Back in October, the Chicago Tribune noted that long-term interest rates had been lower than short-term rates since June, and that a
recession has followed seven out of the last eight times that the yield curve has been inverted.
In addition, the paper added,
new-car sales [were] down about 5 percent from a year ago. This has happened six times over the past 40 years, and in every instance the economy was either lapsing into recession or already in recession.
On top of that, the WSJ reported in mid-December that
construction permits to build new homes [were] down 29% since August 2005. There have been eight comparable declines since 1950, and seven were followed by recessions.
Of course, none of these measures is infallible, and there is always the possibility that the optimists could turn out to be right. Still, with the housing market falling off a cliff and all three indicators pointing in the same direction, now is certainly not the time to be wandering around with rose-colored glasses on.
Then again, apparent cognitive dissonance on the part of mainstream tea-leaf readers should not be seen as all that surprising. As the Chicago Tribune notes,
not one recession in the past 50 years was forecast in advance by a major poll of economic forecasters, said James Stack, a market historian and editor of InvesTech Research.
My guess is, that track record will remain unblemished.
You know what they say about economists Michael, they couldn't predict a recession if we were in one.
Talk is cheap, anybody can make 100s of predictions and a few will be right. Heck, monkeys could do better by throwing darts on the board.
Posted by: Yaser Anwar | January 03, 2007 at 03:10 AM
Have you examined the odds of a recession in the next year, based on regression analysis of the WSJ survey?
Do you have the actual major survey results for each year preceding a recession, and compared them to the survey results for years NOT preceding a recession?
You blog points out very neatly the difference between "analysis" and "fear-mongering."
Posted by: Bill aka NO DooDahs! | January 03, 2007 at 11:55 AM
I've highlighted three different indicators that suggest the risk of an imminent recession is high. Given that, people should be extremely wary of rosy economic forecasts. If that is fear-mongering, I'm guilty.
Posted by: Michael Panzner | January 03, 2007 at 12:57 PM
Do you believe those indicators are things that the survey participants are not aware of?
Posted by: Bill aka NO DooDahs! | January 03, 2007 at 01:58 PM
I believe they are aware of those things -- hence, the title of my post.
Posted by: Michael Panzner | January 03, 2007 at 03:21 PM