Abstract
It is generally believed that the recession of 2007–09 was not foreseen by business economists. Is this perceived view accurate? We explore this issue by examining business economists’ published statements about economic conditions. We compare these qualitative forecasts with the Beige Book. We conclude that both sets of data are similar and that business economists are responsive to information about the economy and adjust their predictions quickly.
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Notes
The search term “recession” was used for the year 2007 and the term “economic forecast” was used for both 2007 and 2008.
The forecasts that are examined here do not include any quantitative forecasts from professional consulting firms.
The Beige Book has been published since 1970.
The real GDP estimates are not available until a month after the quarter ends; state employment statistics are only available with a month delay; and gross state product is not available until two years later [Balke and Yucel 2000; Balke and Petersen 2002; and Ginther and Zavodny 2001].
Each of the district Federal Reserve branches has their own methods for putting together their reports, but they generally comprise surveys that include, but are not limited to, local businesses, banks, and trade associations [Balke and Petersen 2002; Armesto and others 2009].
It is important to note that the Beige Book is never released in three consecutive months. Since this is the case, the scores were averaged for the months available over a three-month period. For example, in early 2007 data were collected and released on February 26 and April 16, but not in March. Therefore the scores for these two dates were averaged and assigned to February 28 as an average three-month score. March was given no score in this case.
To compare the Beige Book scores to the Wall Street Journal scores, the Beige Book dates needed to be adjusted because the Wall Street Journal scores were all assigned to the last date of every month. The Beige Book scores were originally assigned to the date when their data collection ended, but the data collection end date is not consistent from survey to survey. If that date was on or before the 15th of a month that score was considered to apply to the last date of the previous month and if it was after the 15th, that score was assigned to the end of the same month.
The unscaled, continuously compounded annual rates of change for the series “All Employees: Total nonfarm (PAYEMS)” were used. Available at http://alfred.stlouisfed.org/series?seid=PAYEMS. The Wall Street Journal assessments were compared to the unrevised growth rates first assigned to the months under study.
We only found three business current assessments for May 2007, which may account for the differences between the business scores and both the Beige Book scores and the payroll movements.
Forecasts were compared to the revised estimates for the continuously compounded annual growth rate of nonfarm payrolls (PAYEMS).
A study of business economists’ quantitative forecasts from 2007 and early 2008 showed that they predicted that the economy would slow down but not decline [Stekler and Talwar 2011].
References
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Acknowledgements
We wish to thank Robert Goldfarb and Tara Sinclair for their comments on an earlier draft. All remaining errors are the responsibility of the authors.
Additional information
*Kathryn Lundquist graduated in May 2011 from the George Washington University with a master's degree in International Trade and Investment Policy and a strong interest in forecasting. She currently works as an international trade analyst covering aluminum at the U.S. International Trade Commission.Herman O. Stekler is a Research Professor of Economics at the George Washington University. His specialty is economic forecasting with an emphasis on evaluation. He has written extensively on that subject.
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Lundquist, K., Stekler, H. Interpreting the Performance of Business Economists During the Great Recession. Bus Econ 47, 148–154 (2012). https://doi.org/10.1057/be.2012.2
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DOI: https://doi.org/10.1057/be.2012.2