The fine and hazy art of economic forecasting based on early estimates
``Tough life,'' jokes Stephen K. McNees. What doesn't help for an economic forecaster is the frequent revisions of economic statistics. Revisions published last week on the United States' economic output for the first quarter made a flat spot in earlier estimates disappear.
That sort of thing, notes Mr. McNees, an economist at the Federal Reserve Bank of Boston, causes a certain amount of ``personal anguish'' for those making a living by forecasting the economy.
An economist making a prediction must start from a numbers base for the recent status of the economy.
If those numbers change substantially in subsequent revisions, it can make their forecasts based on the earlier statistics look foolish.
Speaking of the first estimate of the gross national product by the Department of Commerce, he noted: ``You have the choice of throwing it in the wastebasket or using it.''
Actually, most professional forecasters have no choice but to use it. Their bosses - investors, businessmen, or government policymakers - need their best judgments now - not a year or two in the future - in making decisions.
McNees doesn't blame Washington statisticians for the revision problem.
Indeed, McNees praises them for the ``plethora'' of relatively accurate and timely data compared with that of most other nations.
One of McNees's specialties is analyzing the accuracy of economists' forecasts.
In his bank's publication, New England Economic Review, he looked at the record of economists in forecasting the turns in the three most recent business cycles.