Economic Indicators

Economic Indicators

When predicting the future of the economy it is necessary to look at forecasts from several different economic indicators such as Real GDP, unemployment rates, the Consumer Price index, interest rates, Producer Price Index, and oil and fuel prices. It can be helpful to look at more than one forecast as there may be a variety of forecasts with different results or bias. Comparing two forecasts per indicator will give consumers a better idea of upcoming economic conditions. After evaluating such forecasts, it is important to analyze which forecast best suits the current circumstances to more accurately prediction of the economy.

Unemployment Rate

Although some degree of unemployment is inevitable in a complex economy, the amount of unemployment varies substantially over time and across countries. Unemployment rate forecasts matter to the financial market and consumers.

Unexpected changes in the unemployment rate have a statistically significant effect on the economy. These unemployment rate changes affect consumer confidence because the public identifies the unemployment rate with the economy's health. To the extent that changes in the unemployment rate influence households' perceptions and expectations of economic conditions, they also affect spending, output, and employment. Sources, such as The University of Central Florida and The Livingston Survey have released forecasts of the US unemployment rate.

The Livingston Survey released a 2006 forecast that forecasts sustained output growth through the end of 2007. Growth rate will increase to 2.8% in the first half of 2007, and they predict it will then increase to 3.1%. The Livingston Survey has also said that the unemployment rate is expected to rise from 4.5% in December 2006 to 4.8% in June 2007 then increase slightly to 4.9% by the end of 2007. Forecasts are that unemployment will stand at 4.6% in 2006, 4.8% in 2007, and 4.9% in 2008 (The Livingston Survey, 2006).

On the other hand, The University of Central Florida released a forecast stating the unemployment rates end their three-year slide and rise slightly in 2007, but they may remain below 5% through 2009. Payroll job growth slows to 1% in 2007 before recovering to 1.7% in 2009 (U.S. Forecast, 2007). Unemployment rates have been steadily falling since 2003, a trend that will end in 2007. The slight variance in unemployment is no cause for alarm and by 2009 unemployment rates will fall below the 2006 levels. The unemployment rate will rise through 2007 and hit 5.0% before the year ends. In the second quarter of 2008, the unemployment rate will begin to decline once again and is forecast to fall to 4.3% in the 4th quarter of 2009. The decline in the unemployment rate will be driven by strong GDP growth in 2008 and 2009 (U.S. Forecast, 2007 p 4).

These two forecasters have close prediction data for the upcoming unemployment rate. The Livingston Survey predicted that in 2007 the unemployment will be at 4.8%. On the other hand, The University of Central Florida predicted that in 2007 the unemployment rate will be at 5.0%. Given current statistical data presented by the government and economist’s analysis, the most accurate forecaster seems to be the Livingston Survey. Currently, the unemployment rate sits at 4.6%, which is moderately closer to 4.8% and fall into the occurrences of the economy.

The airline industry is procyclical, expanding rapidly along with strong economic conditions and slowing when the economy weakens. The general economic slowdown or rising energy and labor costs will reduce or increase corporate profitability nationwide. The airline’s long-term outlook may be moderately positive, but many hurdles must first be jumped. If the economy remains closely unchanged, as the Livingston Survey forecasts, the Airline industry may not be affected by high increases of the unemployment rates.

Other than weak reading on initial unemployment claims, the economy continues to look good according to statistical data. Fed Chairman Bernanke in his semi-annual report card to Congress gave the economy high marks last week and offered bonus points in the form of inflation showing signs of moderating.

Consumer Price Index

The sources chosen for the CPI forecast paper are the Livingston Survey and The Budget and Economic Outlook, published by the Congressional Budget Office or CBO. The two sources are similar in their forecasts. Both list the CPI in terms of percentage of change rather than the actual CPI. According to the Livingston Survey, the CPI percentage will increase 2.1% by December 31, 2007 and 2.3% by December 31, 2008. The CBO projects an increase of 1.9% by December 31, 2007 and 2.3% by December 31, 2008. The Livingston Survey concentrates on the short-term, while the CBO is