Economic Forecast Basics by John McCallum

Some thoughts for executives on how to use an economic forecast:

First, the economy involves myriad variables and interrelationships of varying measurability and complexity. Not every business depends for its prosperity on the same variables and relationships. Executives should know the key economic drivers of their business and focus on forecasting them. Having said that, economic growth is big for almost everyone; a rising tide does lift all boats.

Second, no economic forecast will ever get everything even close to right, so the wise executive focuses on directional tendencies and worst case/best case scenarios.

Third, not all economic forecasters are equal. Some actually do have better records than others. Executives should spend some time discerning who really is good at forecasting what matters to them.

Fourth, economic forecasters are not the only source of knowledge on where the economy is going. Statistics Canada, industry associations etc. compile data and do studies that can be very helpful. Within organizations, things like order books, customer intention surveys and supplier intelligence may provide hints on the future. Executives sometimes forget that their organization and its relationships can be a goldmine of information on the future.

-by John McCallum