Economic Forecasting

What do fortune tellers with their crystal balls have in common with economists and their statistical models? They both try to predict the future using tools that are a little above our heads.

Economic forecasting is when someone (hopefully an economist) tries to make predictions about the economy, mainly using macroeconomic indicators and trends.

What are they trying to predict? It could be myriad things, but one of the heavy hitters is what future GDP will be. Coming up with an accurate growth rate for GDP is hard, especially since we don’t know what the future of the indicators is going to be either—the unemployment rate, inflation, interest rates, production, worker productivity, consumer confidence...and so on and so on.

Just because it’s hard doesn’t mean we don’t try though. Every quarter brings us new economic forecasts, which affect decisions of large firms and the government. Which is interesting, because it means that economic forecasting not only informs us as to what we think the future will be, but also affects what the future will be. Hmm...economists and fortune tellers might even have more in common than we thought...