The Accuracy of Economic Forecasts
Economists generate lots of forecasts. Usually, we offer many caveats along with our estimates, indicating that the accuracy of our forecasts is threatened by a set of risks. Risks can take many forms, including geopolitical risks like war or terror, policy risks such as unanticipated actions by the Federal Reserve or a presidential administration, or sudden financial market corrections.
Each month, The Wall Street Journal conducts a survey of academic, financial and business estimates regarding their expectations for gross domestic product, inflation, unemployment and a range of other economic indicators. Forecasters are also asked to assess whether the risk to their forecast is to the upside or the downside.
In other words, if their forecast turns out to be wrong, is it more likely that economic outcomes will be better or worse than expected. In the most recent survey, 64 percent of respondents said that the risk was to the upside, the highest in more than two years. Forecasters indicate that anticipated business friendly regulatory changes, tax cuts, and infrastructure spending could produce better than forecasted outcomes in 2017 and 2018.