Economists React to Stock Prices in their Forecasts

There’s a fascinating piece at Fortune today about how economists tend to be reactionary in their recession calls and often time they don’t even come close to predicting weakness until the stock market plunges…

Here’s Mina Kimes:

The last recession officially started in December of 2007, according to the National Bureau of Economic Research. In January of 2008, economists surveyed by Bloomberg put the likelihood of a recession at 40%. That February, they lifted the odds to 50%–and then left them there for months (there was a brief spike in April, after Bear Stearns went under). In early September, just days before Lehman Brothers collapsed and the stock market imploded, economists still placed the probability of a recession at just 51%.

Reacting with the pack

What’s incredible about those odds is the speed at which they changed. That October, economists declared a 90% chance that a recession was coming (by then, you’d have to be a cave-dweller to think otherwise).

The latest revisions are similarly drastic. This June, forecasters saw a mere 15% chance of a recession; in July, that number actually dipped to 13.8%. As more and more economists roll out their (uncannily similar) estimates in the 30-40% range, it seems likely that August’s survey will show a marked increase.

Economists on The Street have gotten very pessimistic in the wake of the August crash, how much of that was driven by what they saw on their blinking screens?

Source:

Don’t listen to recession forecasters (Fortune)
Read Also:

The Poindexter Theory (TRB)

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