The economic forecast is the attempt to predict the future behavior of an economy. For business managers the economic forecast is a key input into their decision making. The economic forecast is used to help make a range of decisions, from hiring and investment to purchasing supplies or deciding on monetary and fiscal policy.
Most forecasts focus on the concept of output or economic activity, which is commonly referred to as Gross Domestic Product (GDP). This measure captures the monetary value of all finished goods and services produced within an economy’s borders. GDP is a gross measure of the economy’s activity and can be adjusted for distortions like price fluctuations and net foreign trade.
Economic forecasts are important because they are an important part of a central bank’s policy decision process and they also help to create monetary and fiscal policies. The rational expectations revolution of the 1970s highlighted that forecasts are a critical input into policy decisions and emphasized the need for models that explicitly incorporate uncertainty. This led to the development of vector autoregressive (VAR) and then estimated dynamic stochastic general equilibrium (DSGE) models, which try to incorporate uncertainty.
The US economy is experiencing a slowdown, with GDP growth expected to decelerate from 2.5 percent in 2023 to 1.5 percent in 2024 and 2025. This is due in large part to runaway spending and regulation that is robbing Americans of their prosperity. America must change course and follow the lead of other nations that keep their taxes low, regulations light, and markets open.