Sinclair.macro economicforecasting
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The document discusses the reliability of macroeconomic forecasts. While forecasts may perform reasonably on average, they often fail to predict significant changes or misses in the economy. Forecasts are most likely to fail at key times when accuracy is needed most. Early government economic data is also often estimated and revised over time as more information becomes available. Therefore, it is important not to rely too heavily on single forecasts or early economic reports, but to consider private data and take forecasts with caution given their inherent unreliability.
![Advocates Love Forecasts
• “Marketing salaries for great marketers will double
over the next 5 years.”
• “By 2018, 70 percent of jobs in [Minnesota] will
require postsecondary education.”
• “There is not a reason in the world why we cannot
grow at a rate of 4 percent a year.”](https://image.slidesharecdn.com/sinclair-150723164253-lva1-app6891/85/Sinclair-macro-economicforecasting-3-320.jpg)
Sinclair.macro economicforecasting
- 1. EVALUATING MACROECONOMIC FORECASTS Tara M. Sinclair Chief Economist, Indeed and Associate Professor of Economics, George Washington University
- 2. “An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today.” - Laurence J. Peter
- 3. Advocates Love Forecasts • “Marketing salaries for great marketers will double over the next 5 years.” • “By 2018, 70 percent of jobs in [Minnesota] will require postsecondary education.” • “There is not a reason in the world why we cannot grow at a rate of 4 percent a year.”
- 4. Remember the March jobs report?
- 5. Remember the March jobs report?
- 6. Remember the March jobs report? • “Private payroll processor ADP said Wednesday that businesses added 189,000 jobs in March, far short of the 225,000 net additions projected by economists' median forecast.”
- 7. Remember the March jobs report?
- 8. Remember the March jobs report?
- 9. 128,000 130,000 132,000 134,000 136,000 138,000 140,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 Employment Data 1-Year Ahead Employment Forecast from the Survey of Professional Forecasters Forecasts Miss the Target Mid 2009: Overestimated by over 7M jobs! Employment(inThousands) Source: U.S. Bureau of Labor Statistics and Philadelphia Fed Survey
- 10. Economic forecasts may do well on average…
- 11. Economic forecasts may do well on average… but they fail miserably at key times.
- 13. Are there any Good Forecasters? • The Federal Reserve Board’s staff is generally the best forecaster for the U.S. economy • But this does not mean good! • Recently surveys of professional forecasts have mostly caught up to the Fed • e.g. the Philadelphia Fed’s Survey of Professional Forecasters (SPF)
- 14. Real GDP Forecasts -12 -8 -4 0 4 8 00 01 02 03 04 05 06 07 08 09 10 11 12 13 Real GDP Growth Data Fed Staff One Year Ahead Forecast SPF One Year Ahead Forecast
- 15. PCE Inflation Forecasts -6 -4 -2 0 2 4 6 00 01 02 03 04 05 06 07 08 09 10 11 12 13 PCE Inflation Data Fed Staff One Year Ahead Forecasts SPF One Year Ahead Forecasts
- 16. Why Do Forecasts Fail? • Information. • Information. • Incentives.
- 17. The most-watched government data are old news…
- 18. The most-watched government data are old news… and yet they’re actually based on forecasts.
- 20. U.S. Real GDP Growth Estimates SPF Forecast Advance Estimate Second Estimate Third Estimate 1st Quarter 2015 (Jan – Mar)
- 21. U.S. Real GDP Growth Estimates SPF Forecast Advance Estimate Second Estimate Third Estimate 1st Quarter 2015 (Jan – Mar) 2.7% 2/13/15
- 22. U.S. Real GDP Growth Estimates SPF Forecast Advance Estimate Second Estimate Third Estimate 1st Quarter 2015 (Jan – Mar) 2.7% 2/13/15 0.2% 4/29/15
- 23. U.S. Real GDP Growth Estimates SPF Forecast Advance Estimate Second Estimate Third Estimate 1st Quarter 2015 (Jan – Mar) 2.7% 2/13/15 0.2% 4/29/15 -0.7% 5/29/15
- 24. U.S. Real GDP Growth Estimates SPF Forecast Advance Estimate Second Estimate Third Estimate 1st Quarter 2015 (Jan – Mar) 2.7% 2/13/15 0.2% 4/29/15 -0.7% 5/29/15 -0.2% 6/24/15
- 25. Revisions Between Quarterly Annualized Percent Changes of Real GDP Revision Average Absolute Average Advance to Second 0.1 0.5 Advance to Third 0.1 0.6 Second to Third 0.0 0.2 Advance to Latest -0.1 1.2 Based on the period from 1993 through 2013. The average growth rate in this period (based on today’s data) was 2.6%.
- 27. Three “Dirty Secrets” 1 Forecasters rarely see a big change coming.
- 28. Three “Dirty Secrets” 1 Forecasters rarely see a big change coming. 2 Early data are often more like forecasts.
- 29. Three “Dirty Secrets” 1 Forecasters rarely see a big change coming. 2 Early data are often more like forecasts. 3 It takes a lot of data to get the big picture.
- 30. What Do We Do With Bad Forecasts? • At least avoid the horrible ones • Try to improve • Learn lessons when they fail
- 31. Final Takeaways • Macroeconomic forecasts are notoriously unreliable. • Macroeconomic data can send mixed signals as it arrives in real time. • When we most want to know the future is when forecasts are most likely to fail. • So… • don’t be surprised when forecasts fail. • don’t rely on a single number. • watch the private sector for new data to complement government data.