The Difficult Business of Forecasting
February 16, 2004
Last week, President Bush issued his annual Economic Report. Most of the press attention has focused on the economic forecast, especially for jobs. Economic forecasting, however, is not very good in general and all administration forecasts tend to be fairly far off. Sometimes they are criticized at the time they are made because some aspect appears to be outside the range of conventional wisdom. But, later, it turns out to be correct, says Bruce Bartlett.
This is worth remembering because right now a number of liberal economists, such as Brad DeLong of the University of California at Berkeley, are saying that the administration's jobs forecast is implausibly high. It is forecasting a gain of 2.6 million payroll jobs this year, after two years of negative growth.
According to Bartlett, the unemployment rate has already fallen faster than most private forecasters thought it would. Last July, the Wall Street Journal surveyed the nation's 54 best economic forecasters:
- Virtually all of them thought the unemployment rate in November would be well above 6 percent, and, in fact, it was 5.9 percent.
- As recently as January 2 of this year, the same group thought the unemployment rate would not reach 5.7 percent until May, yet it is already at 5.6 percent.
According to Bartlett, the odds favor an optimistic outlook for jobs. It has been a long time in coming, but with every single other economic indicator pointing upward, jobs must also rise at some point. We may even do better than the administration is forecasting by year's end.
Source: Bruce Bartlett, "The Difficult Business of Forecasting," National Center for Policy Analysis, February 13, 2004.
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