Friday, December 12, 2014

CPI and Employment Forecasts

Out of curiosity, I took some statistical software that I have and generated the forecasts of CPI and Payroll Employment below. In the future, I would like to further refine my forecasting techniques, but I decided that, for the time being, I would begin creating one-point ahead forecasts. I hope to refine my techniques in the future. My current model is a vector autoregression based upon two variables, payroll employment as a percent of the age 16-64 population and change in the rate of inflation. 

Here is the CPI estimate:
3rd Quarter 2014 (actual): 117.2
4th Quarter 2014 (forecast): 118.7 (and increase of 1.5 points, or by 1.3% [annualized to 5.2%])

Here is the Payroll Employment estimate:
3rd Quarter 2014 (actual): 62,480
4th Quarter 2014 (forecast): 63,350 (increase of 870 in payroll employment, or by 1.4%)

Using an alternative univariate method for one-period ahead forecast for CPI, I was able to get an equivalent forecast of 118.7.  Using another univariate method for one-period ahead forecast of Payroll Employment, I was able to get a forecast of 62,760, an increase of 280 in payroll employment, or by 0.4%. Regardless of the differences in these forecasting methods, the indication is that Payroll Employment would be expected to rise from September 2014 to December 2014, in both cases more than my estimate of the rise of the age 16-64 population, which could rise by approximately 166, or by about 0.2%.

I hope that these forecasts are true, as it may indicate that we may be experiencing an economic recovery. In the future, I would like to work on improving my forecasting methods and developing more elaborate and accurate models which may give a better indication of where we are headed in the near future, and hopefully into the more distant future, too.

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