Rearview Mirror Is Where Economists See Future

John Maynard Keynes once said that when the facts change, I change my mind. Economists of all stripes practice what Keynes preached, at least when it comes to forecasting. Revise history and the future looks different. Weaker growth last quarter translates into weaker growth the next.

That’s the message from the Bloomberg News economic survey. Every month, 60 respondents on average provide forecasts for various indicators, including real gross domestic product, the consumer price index and the unemployment rate, and interest rates, such as the federal funds rate and 10-year Treasury note yield, for the next few quarters and two years out.

As U.S. economic indicators started to sputter over the summer, economists duly marked down their forecast for third- quarter real GDP growth to 1.9 percent in the September survey from 2.5 percent in August, 2.8 percent in July and 3 percent in June. “Hindcast” would be a more apt description for what these folks do.

“It’s really an indictment of the forecasting business,” says Bob Barbera, chief economist at Mt. Lucas Management Co., a New York hedge fund, and himself a forecaster. That doesn’t mean extrapolating from one quarter to the next is a bad strategy. “Allowing the pace of economic growth in the last three to six months to dictate the next three to six months beats most forecasts — except when it matters,” Barbera says.

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