An economic forecast is a prediction of future business activity or consumer spending. Such predictions are typically made for a range of one to several years. A number of different methods are used to make economic forecasts, from econometric models to surveys of business investment plans and regular reports on the condition of businesses’ inventories of capital goods.
The most common economic forecasts are of a country’s gross national product (or “GNP”) and its component parts. Almost all developed nations maintain sets of national income accounts and make GNP forecasts regularly.
Developing good forecasts requires analysis of the general economy and careful consideration of specific factors that are important to a given industry or firm. For example, lumber sales may correlate fairly directly with the growth of home construction and overall consumer spending, but forecasting for a paper mill must take into account other factors as well, such as the supply of raw materials.
Economic theory often determines the general outline of a forecast but judgment plays an equally important role. A forecaster may decide that the current circumstances are unique and that a forecast produced by standard statistical methods should be adjusted to take into account other factors, such as the effect of high interest rates on consumer spending or the effect of threatened shortages on consumers’ purchasing habits.
Many economists use judgmental methods to fine-tune forecasts that have been generated by a model or set of models. They also read and analyze commentary from sources with a broad overview of the economy. For example, the Blue Chip Indicators is a poll of around 50 leading forecast economists from banks, manufacturing industries and brokerage firms that has been published since 1976. Most countries and regions have similar surveys of professional economists that provide mean and median forecasts.