Forecasting with Economic Indicators
For over fifty years, experts and novices, learned scholars and naive upstarts have searched for statistics that signal future changes in economic activity. This chapter summarizes and evaluates those efforts. It is somewhat unfair, but nonetheless possible, to assess in a phrase or two the voluminous work in this area: some good statistical indicators have been uncovered but none of them is infallible and many are unreliable. l
Indeed, the efficacy of statistical indicators in forecasting future economic activity is quite controversial. It has been observed that the perfect indicator can never be found even if it does exist. The government and other decision makers would track the statistic and take offsetting policy actions that would preclude the forecasted change from coming about.2 One might question the ability of decision makers, especially the government, to adopt and implement precisely offsetting policies. And even on a theoretical basis, the perfect indicator could be expected to have a self-fulfilling character. A rise in such an indicator would promote business and consumer optimism and, thus, economic prosperity.