Market comment 2023

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What happened to that recession? The recession we were supposed to be in right now, I mean—the one that various forecasters assured us was a sure thing. The “writing is on the wall,” many economists believed in June. A downturn was “effectively certain” as of October. Maybe the dip was already here, some suspected, and we just had yet to notice it.

Or not. Unemployment is holding steady at its lowest rate in half a century. Layoffs are not increasing. The economy is growing at a decent clip. Wages are rising, and households are not reducing their spending. Corporate profits are near an all-time high. Consumers report feeling confident. So why were forecasters so certain about a recession last year, leading so many people to feel so pessimistic?

The Economist retains a database of annual GDP forecasts, now numbering more than 100,000. It has found that analysts tend to be off by 0.4 percentage points a quarter in advance, 0.8 percentage points a year in advance, and 1.3 percentage points two years in advance. (Those variations are significant, given that wealthy countries tend to have growth rates between zero and 4 percent.) The publication has also found that forecasters are the least accurate right before a recession hits. In other words, recessions are the hardest thing for analysts to forecast.

The Reason the Recession Hasn’t Happened Yet