Surprise!

I attended a meeting last evening, organised by the Institute of Bankers in Ireland entitled  'Economic Outlook for Ireland in Dangerous Times'. It was addressed by three erudite and informative economists who spoke, generally, positively about Ireland  economic future and I will spare you the details of a full report as it lasted for two hours. What I do want to mention, though, was that two of the speakers made reference to the 'Surprise Index'.
I have to admit this indicator was new to me but apparently it is one that is closely watched my many market participants. Briefly it is a measure of economic forecast v actual data. When the data comes in as expected the value is zero , worse than expected gives a minus figure and better...well you get the idea. Here is an example of how the index correlates to the performance of the S+P.

Whilst not a perfect correlation it is still indicative of  the close relationship between forecasters expectations and market prformance. Apparently the most recent Global Surprise Index is trending above zero, that is, economic data is coming in better than genrally predicted and this is a cause for optimism.
Now I am not here to deride any economic forecasters ( well, maybe Morgan Kelly ). I know how intelligent and hard working many of them are as was indicated by the quality of the presentations at the Istitute of Bankers. But my problem lies in the benign title 'Surpirse' Index. To me it is the ' The Totally Innacurate Forecasts' Index. If the forecasters were generally accurate the graph would show a much flatter curve hovering around the zero. It patently does not.
No economist I know would claim any psychic abilities or special gift for predicting the future and would always be totally honest about their ability to predict any economic outcome. They are human and know their methodologies are flawed.
My problem lies with the wilful abandonment of caveats when these preditions are published. Newspapers print OECD, ERSI, IMF and many others economic forecasts as if they were definates. Politicians then quote and use them to their own ends and markets will follow suit. It is amazing how wildly innacurate most economic predictions about Ireland have been over the last 5/6 years and equally amazing how quickly forgotten this is.
I am not saying ignore the forecasters but to emphasise that they are always 'best guesses' , they cannot possibly be any more than that.
To quote the great economist JK Galbraith ;

"The only function of economic forecasting is to make astrology look respectable"