Incoming News and Near-Term Forecasting

The first step in economic forecasting is to establish where the economy actually is. This constitutes a prerequisite for a proper forecast of where it is heading (Section 3.1). The starting point is therefore the collection of a great variety of economic information with a view to assessing the state of the economy before national accounts data become available, weeks or months down the road (Section 3.2). In this regard, survey data can provide precious insights, almost in ‘real time’, and usefully complement the ‘hard data’ due to be released later on (Section 3.3). Once reasonably comprehensive information has been gathered, the challenge is to make sense of it, by adjusting the raw data in various ways and combining some of them to build summary indicators (Section 3.4). In this context, bridge models are especially useful for near-term forecasting purposes (Section 3.5). Even so, macroeconomic monitoring involves difficult trade-offs between abundant but often seemingly inconsistent bits of information (Section 3.6).