Forecasting as a Tool of Government
After the longest expansion in postwar history, the American economy in the first quarter of 1967 virtually ceased to grow. The gross national product—the sum of all goods and services produced in the United States—rose only $5 billion (to an annual rate of $744.6 billion) over the rate recorded for the final quarter of 1966. That small gain gave clear proof of a drastic change of pace in the country's economic growth. Economists now are sharply divided as to what will happen next. Some predict an early resumption of the recent record-setting upward climb in production, personal income, and employment that began in 1961; others are less optimistic, predicting either a continuation of the current pause or a recession.
The division of opinion results from the fact that the statistics that depict the state of the huge U. S. economy are telling a confusing story. Economic forecasters are therefore having difficulty making up their minds about what is happening now, much less what may happen three or six or 12 months from now. Yet it is precisely at a time like the present or like 1962, when the economy also took a “breather,” that accurate, reliable forecasts are most needed.
Even when the immediate course of the economy seems clear, economic forecasts are looked to for guidance in charting government fiscal and monetary policy and in shaping plans of private business. When the short-range level of economic activity is uncertain, the importance of an accurate forecast is vastly increased. Virtually every federal program is affected in one way or another by the state of the economy, and those who plan the programs have to estimate that effect. Their need for dependable forecasts is unquestioned. Whether the available forecasts are accurate enough to meet the demands made on them is another matter.