At the end of the fourth quarter, the median forecast was for a decline of 0.1 percent in first-quarter growth. The Commerce Department's first guess at first-quarter GDP growth won't be reported until April 26, but it would take some really weird numbers on trade and inventories to produce a decline.
Some forecasters lifted their first-quarter forecasts to 5 percent, following stronger-than-expected (see, there it is!) data on consumer spending, construction spending and manufacturing. Looking back at other big forecast errors -- the fourth quarter of 1987, following the October stock market crash; the post-Gulf War period; and the fourth quarter of 1998, following the Russian default and near-collapse of hedge fund Long-Term Capital Management -- Bianco diagnosed the problem as shock effect.
"Economic forecasters cannot handle shocks and surprises to the economy," Bianco says. "They consistently overestimate the negative impact they have."
Everyone would agree that Sept. 11 was the mother of all shocks. No wonder it produced the mother of all forecast errors.
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