I have often wondered if the purpose of having economists, as a profession, is to convince the world that trying to predict the markets is impossible. After all, economists spend their time evaluating massive amounts of economic data and trying to figure out what it means for the overall economy. Their predictions are wrong most of the time and when they finally realize that the've made an incorrect economic prediction, it is too late to help the individual investor.
To be fair, there are Wall Street economists and there are independent economists and their projections are often different. Wall Street economists tend to analyze information and look at the bright side of the economy as it is in the best interests of Wall Street firms to have a bull market than a bear market. Wall Street makes more money in Bull Markets. Therefore, their economic forecasts are more "Sunny" in nature. Independent economists don't serve a Wall Street Master and can be more objective in analyzing economic data. Therefore, their economic forecasts tend to be more "Cloudy" in nature.
So what are the Wall Street economists saying about the chance of a recession? According to the Wall Street Journal:
"On average, the survey's 52 respondents put the odds of a recession at 49%, up from 40% in the January survey and 23% in June. Moreover, if a recession does materialize, they gave 39% odds that it will be worse than the past two recessions . . .
On average, the economists, who were surveyed between Jan. 31 and Feb. 4, predicted the nation's gross domestic product -- or total output of goods and services -- will expand at a 0.6% annual rate in the first three months of this year; that is down from the 1.2% pace predicted in the previous survey. In fact, they lowered their growth estimates for every quarter of 2008. The economy grew a slim 0.6% in the fourth quarter of 2007, a sharp deceleration from the third quarter's 4.9%.
If there is a downturn, the economists said, there is a better than 1-in-3 chance it will be worse than the one in 2001 or the one that ended in early 1991."
The most fascinating thing about Wall Street economists: As a group, they have never forecast a recession in advance. Never. Some get it right, but overall, the group has been consistently late in recognizing contractions.
