next recession, which didn’t strike until 1980 while most economists
thought it had begun early in 1979.
From 1976 to 1995, Robert J. Eggert and subsequently Randell
Moore have documented and summarized the economic forecasts of a
noted panel of economic and business experts. These forecasts are com-
piled and published in a monthly publication entitled Blue Chip Eco-
nomic Indicators.
In July 1979, the Blue Chip Economic Indicatorsreport said that a
strong majority of forecasters believed that a recession had already
started—forecasting negative GNP growth in the second, third, and
fourth quarters of 1979. However, the NBER declared that the peak of
the business cycle did not occur until January 1980 and that the economy
expanded throughout 1979.
By the middle of the next year, forecasters were convinced that a re-
cession had begun. But as late as June 1980 the forecasters believed that
the recession had started in February or March and would last about a
year, or about one month longer than the average recession. This predic-
tion was reaffirmed in August, when the forecasters indicated that the
U.S. economy was about halfway through the recession. In fact, the re-
cession had ended the month before, in July, and the 1980 recession
turned out to be the shortest in the postwar period.
Forecasters’ ability to predict the severe 1981 to 1982 recession,
when unemployment reached a postwar high of 10.8 percent, was no
better. The headline of the July 1981 Blue Chip Economic Indicatorsre-
port read, “Economic Exuberance Envisioned for 1982.” Instead, 1982
was a disaster. By November 1981 the forecasters realized that the
economy had faltered, and optimism turned to pessimism. Most
thought that the economy had entered a recession (which it had done
four months earlier), nearly 70 percent thought that it would end by
the first quarter of 1982 (which it would not, instead tying the record
for the longest postwar recession, ending in November), and 90 per-
cent thought that it would be mild, like the 1971 recession, rather than
severe—wrong again!
In April 1985, with the expansion well underway, forecasters were
queried as to how long the economy would be in an expansion. The av-
erage response was for another 20 months, which would put the peak at
December 1986, more than 3.5 years before the cycle actually ended.
Even the most optimistic forecasters picked spring 1988 as the latest date
for the next recession to begin. This question was asked repeatedly
throughout 1985 and 1986, and no forecaster imagined that the 1980s ex-
pansion would last as long as it did.CHAPTER 12 Stocks and the Business Cycle 217