An economic forecast is a projection of future economic conditions using a time series analysis guided by a theoretical understanding of economic processes. It is used for a wide variety of purposes including setting monetary and fiscal policy, state and local budgeting, and financial engineering. An important part of the task involves the development of models that can account for historical empirical regularities and a variety of other factors, such as changes in consumer spending patterns and business investment decisions.
The first step in preparing an economic forecast is to review available information. Commentary from sources with a summary-level perspective is useful as it provides a common framework and identifies key issues and risks. In addition, the review can help to clarify assumptions of an individual forecaster and provide other forecasts to compare against.
Once the data and analytical framework are in place, an econometric model is developed to calculate a relationship between one or more independent variables and a dependent variable. Often these relationships are determined through the use of regression analysis. The results are reported in reports that typically include commentary and graphs to help convey the underlying assumptions and the reasoning behind the projections.
A large volume of forecast information is produced by private firms and central banks to meet the demand for a snapshot of economic prospects. Many of these publications aggregate forecasts from a group of individual professional economists to produce a consensus forecast for a particular set of variables. This is particularly true for longer-range forecasts such as those for real Gross Domestic Product (GDP). The Blue Chip Indicators, for example, is a monthly survey of around 50 forecasters from banks, manufacturing industries, brokerage firms, and insurance companies that includes their individual forecasts for several macroeconomic variables, including GDP growth.