How Well Can Economists Predict Recessions?

Back in early 2008, I posted the well-known quip that

Economists have successfully predicted nine of the last five recessions.

At the time, I defended economists in general, pointing out that we often can foresee a coming recession or uptick, but we are horrible at predicting exactly when it will occur. In part, I suspect, our reliance on rational expectations models causes us to think things will adjust more quickly than they really do out there in the real world.

Last week, though, Maclean's magazine printed a short note saying that economists don't even forecast recessions well at all and "tend to be too optimistic", just the opposite of the quip quoted above.

GRAPH OF THE WEEK: Economists really can’t predict recessions

As renowned British strategist James Montier recently wrote in a Société Générale report, when you look at their record, it’s clear “that the three blind mice have more credibility.” As a group, economists failed to predict the last few GDP tumbles, and in general, they tend to be too optimistic.

While it does look as if the bulk of the profession completely missed the recessions of 1991 and 2001, I do want to point out that economists correctly called the 1983 downturn and the 1993 peak, and their forecasts actually led the performance of the economy much of the time going into the current recession.

Comments

[Fraser]

It looks to me, at first glance, that economists are good at forecasting a general trend, bad at picking the magnitude of a specific business cycle fluctuation. Just curious who the "economists" are... are they academics, central bankers, public servants?