Our Inability to Forecast Recessions

Brad DeLong has an interesting post about predicting recessions.  He quotes Dan Gross (the writer) quoting Christina Romer (the Berkeley professor), who said that recessions are impossible to forecast.  Then DeLong adds some of his comments from the standpoint of what makes sense for economists to say.

For a business leader who has to make plans for the future, here’s my take:
If you forget about a formal definition of a recession, and simply ask if we should expect a significant slowing of the growth rate of the economy, our forecasting track record is better.  For businesses, knowing whether a downturn will meet the NBER’s critieria for recession isn’t too important, but knowing whether growth will accelerate or decelerate is very useful.  Indicators such as short-term interest rates or the shape of the yield curve are very useful in gauging the likelihood of a deceleration.
The real lesson here is that all enterprises (businesses, non-profits and governments) should do some contingency planning for an economic downturn, and they should do it well before the downturn begins. Think about my four steps for economic contingency planning.

Addition: Economist’s View also has thoughts on this topic.