Predicting the Economy with a Side of Salt

Economic forecasting is an art and a science – at least a social science – but that doesn’t ensure accuracy in the predictions. In fact, according to a recent report from the Federal Reserve Bank of St. Louis, projections about the state of the economy from professional economic forecasters are often far off the mark.
“Measuring the current state of the economy is difficult because data are backward-looking and often revised,” the report said. “As a result, economic forecasts are frequently wrong.”
How frequently? Reviewing economic forecasts from 1993 to 2024, the report found that predictions fell within the range of the average most negative forecasts and average most positive ones less than half the time. While batting nearly .500 would be Hall of Fame numbers for a professional baseball player, getting it right only half the time is not going to get an economist on any social science all-star team. And when compared to meteorologists at the National Weather Service, the economists fall even further behind the curve, at least in the short term.
NWS forecasts don’t fall to the 50% accuracy mark until more than a week and a half out. The one-day forecasts have a 96%-98% accuracy mark, falling to a still respectable 80% level for the seven-day forecast. Yet weather forecasters are castigated in popular culture and social media for getting it wrong so often.
One could argue the lack of accuracy in economic forecasting helped create the idea of the “vibe economy,” where perceptions about money and finance are more deeply held than economic realities. But that would miss the point.
In reality, the economic “misses” from professional economic forecasters tend to be on the negative side. That is, the predictions tend to be lower than what ultimately happens. For example, the Blue Chip Survey of about 50 economists projected U.S. gross domestic product for 2024 to increase by 1.3%. But when the dust settled, the nation’s GDP rose by more than twice that amount to 2.7% for the year. That’s a pretty big swing and a miss, even allowing for the difficulties in accurately forecasting growth as outlined by the St. Louis Fed report.
But that doesn’t stop economists from making predictions or consumers from accepting them as facts. The statistical basis of economics in general and economic prognostication in particular gives it an aura of authenticity and truth that is misplaced at best and misleading at worst.
For as much as some question the authority of the physical sciences in other fields, the learned discourse of social scientists – especially economists – is readily accepted as revealed truth by many, despite the likelihood that many of those pronouncements will be off the mark.
Until we can get a real-time reading on the state of the economy in the same way we can stick our heads out the window and see what the weather is like right now, consumers will have to rely on economic forecasters for information about the financial future. But we don’t have to believe them.
