On New Year's Eve 2007, the Financial Times, in its customary look at the year ahead, declared that “the US will skate along the brink of recession in early 2008, but should avoid tipping over the brink”. In retrospect, we can ruefully enjoy that forecast not because it proved to be wrong – although it was – but because it was wrong even as it was published. The recession actually began in December 2007, just as the FT was announcing that it wouldn't begin at all. To modify the old quip, “prediction is very difficult, even when it's not about the future”.
This is one more reason to pity economists. Weather forecasters can glance out of the window if they want to find out what the weather is doing right now. Economists must wait: it took the National Bureau of Economic Research almost a year to declare that the recession had begun at the end of 2007. Economists on the Fed's Open Market Committee or the Bank of England's Monetary Policy Committee have the unenviable job of setting interest rates for an economy at whose current state they can only guess.
There's no mystery as to why “nowcasting” is difficult. The US economy is, to resort to jargon, very big and very complicated. The ideal nowcast would slurp up data on payroll, invoices and payments received in real time from every business in the country. But that asks too much of businesses which are focused on the more pressing matter of giving their customers what they want. Many small businesses simply have no idea how they are doing until several weeks after a quarter has finished, when they figure out how much they owe the taxman. If the business owner herself doesn't know whether February was a good month until the end of May, it is quite a lot to ask the economists at the Treasury or the Federal Reserve to be more prompt.