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Economic forecasts are just predictions

UCLA has issued a prediction that the housing market in California will see a nice bump — but not until next year.

Senior economist Jerry Nickelsburg of UCLA told the SacBee:

“While there will be a robust recovery in California residential construction, we do not find evidence in favor of it beginning in 2012 compelling.”

Still, there has been some good news in the short term. For example, median prices for a single-family home rose 8.4 percent in May over last year.

Nickelsburg added:

“The number of foreclosures, particularly in California, remains high.”

The numbers aren’t falling, and Nickelsburg told the Bee he isn’t counting on an “early conclusion to the end of the foreclosure/short sale nightmare particularly in the inland counties.”

The UCLA report is mostly in line with Fed Chairman Ben Bernanke’s testimony before Congress yesterday. Bernanke painted a similarly mixed picture, saying he doesn’t expect unemployment to fall below 8 percent this year.  According to the Fed’s current numbers, unemployment probably won’t fall below 7.5 percent until 2013.

But let’s back up and realize what we’re talking about here. The key word here is “forecast,” which automatically implies some degree of uncertainty. And when there’s uncertainty, it’s impossible to make an accurate prediction.

Remember how 2010 was going to be “the Recovery Summer” (at least according to the Obama administration)?  Or do you remember back in 2006 and 2007 when housing prices were just going to keep climbing, and the stock market was never going to hit the bottom?

To quote Fed Chairman Bernanke in understating the obvious:

“[The situation] is not entirely clear.”

Nor is it ever truly clear. Economics is a study that depends in large part on the financial decisions of individuals. Many people hear this kind of forecast and assume that they’re powerless pawns in a cold, merciless system.

Consumers, though, actually hold quite a bit of power. Economists are simply reacting to the reality as they see it, a reality that changes moment to moment. It would go a long way toward improving things if people would wake up and realize we’re more powerful than we think.

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