Which of two groups—economists or the general public—came closer to predicting the recession? Surprisingly, it looks like the Joe Six Packs of the world were better economic prognosticators than the elbow patch set.
In November 2007, a Gallup public opinion poll found 54% of Americans believed a recession would probably or definitely occur in the next 12 months. By comparison, a Wall Street Journal survey of 52 economists conducted two weeks later found that, on average, the professionals put the chances of a recession at 38%. In reality, the longest recession in at least 26 years began in December 2007, almost immediately after the two surveys were conducted. A majority of the public got it right. Many economists did not. “This recession, economists have done even worse than usual,” said Franklin Allen, co-director of Wharton Financial Institutions Center at the University of Pennsylvania. “They muffed predicting the crisis.”
Earlier this month, the non-profit National Bureau of Economic Research announced that the economy has been in recession for a year. If the downturn extends past April, as most economists expect, it will be the longest recession since the Great Depression. It took most economists several months to identify the recession once it unofficially began. In January, the Journal’s panel of Wall Street, academic and industry economists put the chances of a recession at less than 50%. They did it again in February. In fact, the majority of the paper’s experts didn’t declare a recession until March, around the time that monthly retail sales started to plunge and job losses began to mount.
Even more galling to some observers, though, was the failure of the Bush administration, including Mr. Bush himself, to acknowledge the downturn well into this year. “They did not awake to the recession risk until it was well underway,” said Lakshman Achuthan, managing director of the Economic Cycle Research Institute. While it’s the job of many economists to forecast the future, they can take solace in knowing they weren’t the only ones to get it wrong.