Mission Impossible: Predicting Recessions

By Simon Constable

Constable, a former TV anchor at The Wall Street Journal, is a fellow at the Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise.

March 26, 2025

Over time, recessions come and go. It’s just a fact of life. And if one might be imminent, business leaders and politicians all want to know. After all, if a recession could be right around the corner, a company might want to cut back on expenses or hire new employees. But there’s a problem: Few predictions of these economic collapses are right.

Indeed, try as they might, economists are almost always missing the mark. In mid-2022, many all but promised an imminent US recession—one that still hasn’t shown up more than two years later. Likewise, the COVID-19 recession wasn’t widely foretold, nor the Great Recession of 2007 to 2009. Mere months before the 1930s began, economists weren’t forecasting the Great Depression, says Jack Ablin, founding partner at wealth-management company Cresset Capital. “This isn’t a new phenomenon,” he says.

Famed economist John Kenneth Galbraith summed up the failure with a quip: “The only function of economic forecasting is to make astrology look respectable.” Other pundits substitute weather forecasters for astrologists. Nevertheless, the question remains: Why do economists get it so wrong so often?

At least part of the problem is that the economy is a complex system that encompasses chaos, says David Salem, managing director of capital allocation at financial-research firm Hedgeye. This includes the huge, multifaceted global supply chains that many major corporations rely on to manufacture their goods, as well as the impact of unexpected wars or political tension between sovereign states, not to mention inclement weather, unionized strikes, and more. “It is extremely difficult to follow that,” he says.

Salem says our modern economy is not truly a free market. Instead, he says, it’s shaped by a variety of private and public actors, with the latter having a big role in the creation of recessions. A historical example would be the introduction of massive tariffs in the 1930s that many pros say helped send the US into a depression.

Anyone making an economic-recession forecast for the US must also navigate a definition that is somewhat vague. Contrary to popular belief, two back-to-back quarters of negative growth don’t define a recession in the US. The definition—according to the National Bureau of Economic Research, the ultimate authority—is “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.”

The NBER definition is “incredibly squishy,” Salem says. In other words, it’s not precise, which creates tricky challenges for economists. Worse, recession data tends to lag. For instance, the NBER declared the Great Recession was over in mid-2009, but only announced it in 2010.

Another longtime economic observer believes recessions are the result of large, unexpected events in the economy. David Ranson, president and director of research at  HCWE & Company, says that any recession involves a major element of suddenness or surprise. “For that reason, forecasting a recession should be extremely difficult,” he says. Examples of such economic shocks include the unprecedented government lockdowns during the 2020 pandemic and the subprime mortgage crisis of 2007 to 2010, in which many economists were shocked to find that making masses of loans to people with less than perfect credit wasn’t as profitable as expected.

Perhaps the most surprising thing about the lack of accurate forecasting is the absence of consequences. “Apparently, economists can be wrong for decades and still keep their reputations,” says Robert Wright, a lecturer in economics at Central Michigan University.

Photo Credits: Yana Iskayeva/Getty Images; Rob Dobi