Polling economists about whether the country is headed for a recession does not seem to be the best way to make predictions:
The 39 economists polled Aug. 3-11 put the chance of another downturn at 30% — twice as high as three months ago, according to their median estimates. That means another shock to the fragile economy — such as more stock market declines or a worsening of the European debt crisis — could push the nation over the edge.
Yet even if the USA avoids a recession, as economists still expect, they see economic growth muddling along at about 2.5% the next year, down from 3.1% in April’s survey. The economy must grow well above 3% to significantly cut unemployment…
The gloomier forecast is a stunning reversal. Just weeks ago, economists were calling for a strong rebound in the second half of the year, based on falling gasoline prices giving consumers more to spend on other things and car sales taking off as auto supply disruptions after Japan’s earthquake faded. In fact, July retail sales showed their best gain in four months.
But that was before European debt woes spread, the government cut its growth estimates for the first half of 2011 to less than 1%, and Standard & Poor’s lowered the USA’s credit rating after the showdown over the debt ceiling.
Here is what I find strange about this:
1. The headline meant to grab our attention focuses on the 30% statistic. Is this a good or bad figure? It is less than 50% (meaning there are less equal odds) but it is also double the prediction of predictions three months ago. Based on a 3 in 10 chance of a recession, how would the country and individual change their actions?
2. This comes from a poll of 39 economists. One, this isn’t that many. Two, how do we know that these economists know what they are talking about? How successful have their predictions been in the past? I see the advantages of “crowd-sourcing,” consulting a number of estimates to get an aggregate figure, but the sample could be larger and we don’t know whether these economists will be right. (Even if they are not right, perhaps it gives us some indication about what “leading economists” think and this could matter as well).
3. How much of this is based on real data versus perceptions of the economy? The article suggests this is a “stunning reversal” of earlier predictions and then cites some data that seems to be worse. These figures don’t determine everything. I wonder what it would take for economists to predict a recession – which numbers would have to be worse and how bad would they have to get?
4. Will anyone ever come back and look at whether these economists got it right?
In the end, I’m not sure this really tells us anything. I suspect it is these sorts of statistics and headlines that push people to throw up their hands altogether about statistics.