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History of economic forecasts "a complete failure" says Nate Silver

You win some, you lose some. For statistician extraordinaire, Nate Silver, he did both with his Super Bowl prediction, nailing that it would be tight game, but giving Seattle a slight edge.

Silver's data-driven predictions in sports and politics have earned him an almost cult-like following. But Silver admits, the prediction business is tough. Here in New York, many of us still haven’t forgiven local meteorologists for incorrectly forecasting a blizzard last week, even if they did a better job with today’s storm.  Silver documents the challenge of getting it right in his book, The Signal and the Noise: Why So Many Predictions Fail—But Some Don’t, out in paperback tomorrow.

While Silver is famous for his calls on sports and elections, he's also game to talk economics - which we asked him about last week. But it turns out even the country's most famous statistician knows when to punt. “The history of trying to make economic forecasts is one of complete failure,” says Silver.

“Historically if you look back at economic forecasters, they have only predicted going 3 or 6 months out. So to say what do I expect to happen by this time next year? I have no idea,” he said.

While Silver, who is also founder and editor-in-chief ESPN’s FiveThirtyEight blog, doesn’t do economic forecasting specifically himself, the data shows “we should be reasonably optimistic,” he said. “Clearly we are at a time where the economy is doing…reasonably well,” said Silver. “You don’t have to hedge and say relative to expectations.”

Hey, we had to ask. Especially after the way this year has started. While 2014 ended pretty strong, 2015 has been a little shaky. Last week’s durable goods data shook the markets and Friday’s GDP report showed the economy grew at a rate of just 2.6%, below expectations. That was after a 5% gain in the third quarter (which had been the fastest rate since 2003). But thanks to an improving job market and lower gas prices, a separate report out last week showed U.S. consumer confidence is at an 11-year high. New jobs data for the month of January comes out Friday.

It was a rough first month of 2015 for the markets too. With the exceptions of Apple, Amazon, and few others, fourth quarter earnings have been disappointing. Stocks closed down Friday on a turbulent day of trading that ended a volatile month. The Dow was down 3.7%, the S&P 500 lost 3.1% and the Nasdaq is down about 2.1% in the month of January. It was the worse month for the Dow since January 2014.

And all of this doesn’t make life any easier for the folks at the Federal Reserve who wish they could predict for the economy what Silver does for sports and politics. The Fed will have to weigh mixed signals from jobs and inflation as it comes up with a plan to raise interest rates. And the drama surrounding Greece and the EU is becoming more of a factor. The Fed hasn’t raised rates since 2006.

No wonder Silver doesn't want to make a prediction. But on the heels of this recent disappointing data, the answer may be taking a step back to look at the big picture of how the economy that has changed. “People worry about the trend but not the absolute output,” said Silver. "You know, a lot of people say [it] is still much lower than where the economy has the potential to be, where we would have thought it would be before the awful crisis we had 6 years ago.”

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