Thinking back on last Friday’s class we went over forecasting and how many companies forecast for their demand/supply. But while I was browsing through the Wall Street Journal Online I noticed forecasting beyond organizations output. I noticed that economists are forecasting everything from stocks, how many times a day my dog goes out and the dreaded housing market. Staying on topic with the housing market I found this interesting article.
http://blogs.wsj.com/developments/2012/01/18/behind-the-numbers-optimism-builds-for-builders/tab/print/
The reason I found this to be interesting is because the forecasters were WAY off. The housing market index has been slowly growing from 21 in December to a whopping 25. However these professional forecasters predicted only a measly 22 in an increase. So this got me thinking. Even though they were off by only 3, what if they had predicted MORE than what the index actually grew to? How would we feel?
To answer this I took some time thinking truly thinking about how I would naturally feel. I came to the conclusion that I would have felt sad, lousy, depressed, and just flat out disappointed. This is because as a soon to be graduate you want to hear that the economy is doing better and recovering from the beating it went through.
So now that these economists forecasted less than what the housing market index actually grew to, I feel great, a feeling of excitement ran through me. This is making me think that the economy is recovering faster than everyone predicted. However, this also got me thinking that maybe the economists making these forecasts were on the edge with some numbers. So just to play it safe they went with a lower one to avoid the heartbreak the American people may have felt if the index did not grow much at all. Was 22 their honest prediction? Or did they want to save us from being disappointed?
Thoughts?
You raise an interesting question. If I were in their shoes, I would probably use a blend of qualitative and quantitative forecasting. Therefore, I would probably under forecast in this particular situation. Delivering news on the housing market can either be positive or detrimental to the U.S. economy and I believe one should take into consideration how people may think, react or be impacted by the information that is being provided.
I think you raise an important question. You would hope that whoever does the forecasting is being ethical. Having said that, I don’t think they have to be very conservative with their predictions. Do you think bias could play a role in their forecasts?