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The Armchair Forecaster Andrew J. Buck Temple University 215-204-1985 215-204-8173 (FAX) [email protected] Important Web Links My Home Page http://oll.temple.edu/economics Interactive Economics Database http://bos.business.uab.edu/browse/bci_97.htm Economic Indicators: The Conference Board http://www.tcb-indicators.org Build Your Own Forecasting Model http://fairmodel.econ.yale.edu Commentary, Regional and National Forecasts http://www.dismal.com General Economic Interest http://www.yardeni.com/welcome.html European Economic Statistics http://europa.eu.int/en/comm/eurostat The Economies of Asia and Latin America http://www.stern.nyu.edu/~nroubini/asia/AsianHomepage.html Forecasting and some basic economic paradigms Forecasting is the art of trying to see into the future on the basis of what we know about the present. In order to avoid the appearance of gazing into a crystal ball, we try to use paradigms of economic behavior to organize our thinking. Supply and Demand Demand P, Q Demand P, Q Supply P, Q Supply P, Q Fiscal Policy Taxes AD GDP Gov't Spending AD GDP Monetary Policy Res. Req. MS i I AD GDP Disc. Rate MS i I AD GDP Buy Bonds MS i I AD GDP A Small Simulation Some Features of the Domestic and World Economic Landscape The U.S. Asia Brazil Europe United States – 1998 Growth: Low of 2%, High of 5% – 1999 Outlook • • • • Weakness in Asia, Russia and Latin America Stagnant Europe Profit Squeeze Consumer is a weakening engine of growth Brazil • • • • Too much short term foreign debt What did they spend all those reales on? Central Gov’t vs. States Fiscal discipline Asia • Overvalued Currencies • Too Much Foreign Debt • Risky Lending in Existing Assets Europe • Sacrificed Fiscal Autonomy on the Alter of a Unified Currency • Expensive, Inflexible Labor • Bright Spots: Ireland and Portugal Components of ILEI • • • • • • • • • • Interest Rate Spread Money Supply Average Work Week New Orders, Consumer Goods S&P 500 Joblessness Vendor Performance Housing Permits Consumer Expectations New Orders, Non-defense Capital Goods LEI - The Long View • 6 - 9 months out • Booms and recessions • Recent Boom Year 1992 1989 1987 1984 1981 1978 1975 1972 110 100 90 80 70 1970 Index (1992=100) Leading Indicator Index Recent History of LEI Index Index of Leading indicators 107 106 105 104 103 102 19 _ 97 1 19 _ 98 1 Date • 3 Consecutive Declines = Recession • Oct: 105.7 • Nov: 106.3 • Next Release: 2/2/99