Wasn't this supposed to be the next Great Depression?
So we were surprised to hear the chair of President Obama’s Council of Economic Advisers, Christina Romer, claim that experts are saying the economy will start to recover later this year.
We suspected her claim, at the very least, lacked a bit of context. Which it does.
She made it on the March 15 Meet the Press , after host David Gregory played a recent tape of her saying "most people are predicting" positive growth in the economy "some time in the second half of the year."
Romer, whom Obama recruited from the University of California-Berkeley, stood by that. "I should say my prediction is very much what most private forecasters are saying," she said. "We know that this last week the Blue Chip Economic Indicators came out that surveys lots of private forecasters. Almost all of them are predicting a turnaround in the third quarter and positive growth in the fourth quarter."
Blue Chip Economic Indicators is a monthly newsletter by specialty publisher Wolters Kluwer Law & Business. It claims to survey "America's leading business economists" and compiles their economic forecasts. It serves a blue-chip audience: A one-year subscription costs $875.
The consensus, or average prediction of the panelists, was that the economy as measured by the gross domestic product would grow 0.5 percent in the third quarter of 2009 and 1.8 percent in the fourth quarter.
That was not quite enough information to gauge the accuracy of Romer’s claim, so we asked editor Randell Moore for more detail. He said 50 economists were surveyed, with 30 predicting positive growth in the third quarter of 2009 and 45 predicting positive growth in the fourth quarter.
That does indeed support Romer’s claim, since 45 out of 50 constitutes "almost all" the forecasters.
Some context is in order, though. The 19-page report was hardly rosy. In fact, it was more pessimistic than the previous month's issue.
The issue's summary was titled, "The Longest, Deepest Recession Since World War II" and it said, "The economy still is expected to emerge from recession by the end of this year but consensus forecasts of economic growth in 2010 slipped lower once again this month."
The forecasters predicted that for 2009 as a whole, the economy is expected to shrink 2.6 percent, the largest annual contraction since the Great Depression. That was worse than the prior month’s prediction of 1.9 percent.
There were some glimmers of hope in there, but they came amid glum news, as in this sentence: "They say it’s always darkest before the dawn. Well, this week bordered on a full-scale blackout."
Also, we should add a general note of caution about the reliability of the newsletter. The economists surveyed work for companies such as JPMorgan Chase, General Motors Corp., Morgan Stanley, Bank of America-Merrill Lynch and Fannie Mae, all of which have decidedly less-than-sterling track records of late.
As a New York Times writer noted in January , "these professional forecasters are typically employed by investment banks, trade associations and big corporations. They base their forecasts on computer models that tend to see the American economy as basically sound, even in the worst of times."
The New York Times article added, "They did not see a recession until late summer. One reason they were blindsided: Their computer models do not easily account for emotional factors like the shock from the credit crisis and falling housing prices that have so hindered borrowing and spending."
Very few economists predicted the current economic crisis. One who did, New York University professor and noted pessimist Nouriel Roubini (who is not a Blue Chip panelist), said on March 9 that he saw "no hope for the recession ending in 2009 and (it) will more than likely last into 2010."
But Romer is entitled to highlight optimistic forecasts. And it's true that almost all the panelists surveyed in Blue Chip Economic Indicators predicted a rebound by the fourth quarter of 2009. We find Romer's claim to be True.