Tuesday, 20 November 2007

Economists Lean A Little Harder Against The Fence

As I've said a number of times I believe a US economic recession is dead ahead. I would be very surprised if the US was not in one sometime in the first half of 2008.

As I pointed out in 'Why economists are good contrary indicators' the fact that most mainstream economists do not forecast a recession reinforces my view. A report released yesterday by the National Association of Business Economists showed an increasing number of economists are forecasting recession.

More Economists See U.S. Recession Ahead, NABE Says

The number of economists forecasting the U.S. will slip into recession almost doubled over the last two months, according to a survey by the National Association for Business Economics.

Nine of 50 economists pegged the odds of a contraction over the next 12 months at 50 percent or higher, according to a poll taken from Oct. 22 to Nov. 6. Just five of 46 held a similar view in September....

Now let's put this into perspective, the percentage of economists forecasting a 50% chance or more of a recession is still only 18% up from 11% in the last survey. Remember, they are not necessarily forecasting a recession. They think there is at least a 50% possibility of one.

As I asserted in Economists hedge their bets economies don't fall 50% into recession. You either have one or you don't. Forecasting a 60% chance of a recession doesn't make you right or wrong, it just makes you a fence sitter.

I wonder how many economists are forecasting a 100% chance of a recession? My guess is less than 3, and knowing what I know about the reliability of economists in picking turning points in the economy, that gives me greater comfort than ever that the contrarian view will prevail.