Economic Expectations: Who Is The 'Consensus'?

We often hear about a "consensus" prediction on employment or the direction of the economy. But who are the people who make up the consensus? And how good is the consensus at forecasting?

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RENEE MONTAGNE, Host:

Economists expect tomorrow's monthly jobs report to show about 85,000 jobs were created last month. That's the consensus, at least. You've heard these predictions before, and since they seem to be wrong as often as they're right, why pay attention? NPR's Tamara Keith takes on the consensus.

TAMARA KEITH: They're a staple for investors and financial reporters: economist expectations.

(SOUNDBITE OF NEWS BROADCASTS)

Unidentified Man #1: Inflation in the Eurozone rose in March, confounding economists...

Unidentified Man #2: The consensus expectation is for jobs growth of...

Unidentified Woman #1: New home construction slipped a surprise one percent last month. That missed economists' expectations...

KEITH: It can all seem a little mysterious. Who are these economists and how do they reach a consensus? Randy Moore is the man behind Blue Chip Economic Indicators, one of several consensus surveys. He asks about 50 economists every month for their best estimates of how various indicators will turn out. Then...

RANDY MOORE: We calculate a simple arithmetic average or consensus forecast for all of these indicators of economic activity.

KEITH: It's just that simple, though often the consensus is a little off. After all, these are economists, not fortune tellers.

MOORE: When the consensus misses on something, I have to admit I feel a pang of pain. You know, this year's been pretty tough.

KEITH: University of Maryland professor and economist Peter Morici is part of the consensus. He uses models and estimates to come up with his numbers. Morici says for investors and business owners, checking economists' expectations is a bit like checking the weather before you go to the beach.

PETER MORICI: If you have a choice as to whether you're going to the beach, why should you spend your money if it's going to rain? Likewise, why should you hire more workers if economists believe that car sales will be down over the next quarter? It does make a difference as to what the expectations are.

KEITH: But some might argue weather forecasters have a better record than economic forecasters. Jeff Rosen is at Briefing.com. He was so fascinated by the hits and misses of the consensus that he created the Briefing Research Economic Surprise Index.

JEFF ROSEN: Not only does it turn out that economists are often surprised, but you know, lately it's turned out that the economists have been much more bullish about the economy compared to what the actual economic data has been coming in at.

KEITH: We'll find out tomorrow morning how the consensus did predicting the jobs numbers when they're released at 8:30.

Tamara Keith, NPR News, Washington.

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