DEAR ECRI: It's Time To Issue A Simple 3-Word Report: 'We Were Wrong'

AchuthanLakshman Achuthan.

Last September, amid the debt-ceiling debacle and Europe going all to hell, economic-forecasting firm ECRI declared that the economy was “tipping into recession.”At the time, this call was not surprising: the economy really did look like it was headed into the tank. ECRI’s call also left no wiggle room: Unlike many mealy-mouthed Wall Street predictions, it was precise and clear: “The economy is tipping into a recession.”

ECRI Managing Director Lakshman Achuthan amplified the call with high-profile media appearances in which he stated unequivocally that a recession was imminent and unavoidable.

Six months later, the economy is still growing steadily, if unspectacularly. In fact, GDP growth has improved since ECRI made its call.

What’s more, one of the factors ECRI considers when predicting recessions, the Weekly Leading Index, is now improving steadily every week, suggesting that the economic outlook is getting better, not worse.

ECRI’s forecasts are highly controversial on Wall Street, because ECRI refuses to explain what factors it considers when making them.

ECRI simply insists that its forecasts are never wrong. (And, to its credit, ECRI has often been right when others were wrong, such as the summer of 2010).

But in recent months, as ECRI’s September 2011 call has appeared more and more wrong–again, GDP growth has improved since September–ECRI has done what many Wall Street forecasters do when their calls don’t materialise: Explain that their call didn’t mean what everyone thinks it meant and extend the time frame for their prediction. Some economic indicators are deteriorating, Mr. Achuthan told CNN recently, and the recession will begin soon.

And there’s no doubt that a recession will begin sometime.

But it seems highly unlikely that what ECRI meant when it told clients last September that “the economy is tipping into recession” was that GDP would immediately improve and then stay solid for 6 months, even in the face of startlingly high oil prices.

In fact, if the economy does tip into recession by the fall, it will almost certainly be because of those oil prices, not anything that was visible in ECRI’s Weekly Leading Indicator last September when ECRI made its recession call.

There’s no shame in being wrong about the future. On Wall Street, everyone’s often wrong.

What’s shameful is to deny that you are wrong, even when confronted with evidence that proves it–especially when you are selling a “black-box” forecasting tool that you market as never being wrong.

So, instead of finding ever more tortured ways to explain what it really meant last September and how events are unfolding exactly as it predicted, we think it’s time for ECRI to issue a new report, one that is three simple words long:

“We Were Wrong.”

SEE ALSO: Look What’s Happening With ECRI’s Famous Recession-Forecasting Index

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