(NEW YORK) According to Wall Street’s forecasters, the recession of 2008 is now unavoidable. That is, if you read between the lines of their predictions.
In a survey released on Tuesday by the Federal Reserve Bank of Philadelphia, forecasters said on average there was a 47 per cent chance that the economy would shrink in the first quarter of this year.
But the economists surveyed, many working for investment banks or Wall Street research firms, are an optimistic bunch, and every time they have become so worried over the last four decades, the economy has ended up in a recession.
There have been six recessions since 1968, the year that the quarterly survey of economists began. At the start of each one, economists put the odds that the economy would shrink in the current quarter at 40 per cent or more.
At times, the economists have either jumped the gun or said that a recession would last longer than it did.
In late 1979, for example, the forecasters said the economy was already likely to be shrinking; the National Bureau of Economic Research – widely considered the arbiter of business cycles – later said that the recession began in January 1980.
But the recession-probability index – which the Philadelphia Fed calls the Anxious Index – has yet to miss a recession or to signal one that never happened.
Its biggest blemish came in the first quarter of 1988, when forecasters put the odds of a negative quarter at 35 per cent. The economy then continued to grow for more than two years, before entering a recession in the summer of 1990.
In the latest survey, the forecasters also said there was a 43 per cent chance that the economy would shrink in the second quarter of 2008. Every time that reading has risen above 40 per cent, the economy has gone into recession.
Source: NYT (Business Times 14 Feb 08)