At the end of the course, you will be expected to submit a final project. This project will require you to prepare and submit a forecast for an economic indicator. You can choose from the following list of indicators:
- Consumer Price Index
- Payroll Employment
- Personal Income
Each of the indicators from the list above is publicly reported, monthly, by a major governmental reporting agency, such as the Bureau of Labor Statistics or the Bureau of Economic Analysis. You are to match your forecasting skills and economic knowledge against the world’s foremost economists. It should be a lot of fun.
You may preview the final project directions now if you wish, but don’t worry. Throughout the course, we’ll be building the skills you will need to complete this assignment. Note: In my final project directions, I provide an example report to help you plan your own project. The example is in PDF format, so if you do not already have Adobe Acrobat installed on your computer, you can download it now.
Table of Contents
Requirements
Include the following sections in your project:
Section I: Describe the featured indicator. Your description should be no more than two to three paragraphs in length and include, but not limited to, the following:
- an explanation of the economic activity measured
- the reporting agency
- the frequency of the report
Section II: Give a graphical representation of the featured indicator.
Section III: Explain the featured graph(s). Your explanation should be no more than one to two paragraphs in length and include the following:
- the type of measurement used (for example, index levels, period-to-period, period-to-period annualized, and so on)
- commentary on any trend, deviation from trend, and/or volatility
Section IV: Analyze the past, present, and future changes in this indicator. Your analysis should be no more than four to six paragraphs in length and include, but not limited to, the following:
- a description of the behavior of the indicator over the last six months
- the market expectation on the upcoming release (in other words, the consensus estimate)
- a brief explanation of the business cycle and how it relates to this indicator (whether the indicator is a leading, coincident, or lagging indicator)
- how a lower or higher announcement will affect Federal Reserve policy and ultimately interest rates
- your own personal forecast
Sources
Here are some sources for market estimates (consensus estimates):
- Bloomberg Business Calendar (Links to an external site.)
- Briefing.com’s Economic Calendar (Links to an external site.)
- Yahoo Finance (Links to an external site.)
Here are the websites for the reporting agencies:
- Bureau of Labor Statistics (Links to an external site.)
- Bureau of Economic Analysis (Links to an external site.)
My Expectations
I’ve attached an example of an analysis (PDF) of the consumer price index, posted with the permission of Steven A. Wood, chief economist of FinancialOxygen (Links to an external site.). Although this analysis does not contain the exact sections of your report as I have outlined above, it should give you a sense of how your final project can look.
But please, do not worry too much about the technical aspect of this project. You may be asking yourself, “What does he want from me? I can’t do a regression analysis on the jumble of data I downloaded from the BLS!” That is not what I want.
I want you to demonstrate that you can explain the basic principles behind economic indicators. Also, I want to know if you can say something about the business cycle (where the economy is and where it is going on that roller coaster) using your indicator analysis. Do not simply cut and paste dry and confusing definitions from Internet sources when describing your indicator. I want you to, for the most part, use your own words and write as if you are communicating with someone who knows very little about economics. I also want you to choose an indicator that is not prominently featured in the class.
Read through the example I have provided. You can see how a professional economist breaks down indicator data so he or she can answer the following questions:
- What is the latest value?
- How does this differ from the past?
- What is causing the trend of the indicator to change?
- What does the value tell us about where the economy is going?
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