Recently, the Current Employment Report has come out with less than stellar performance for the last quarter of 2014. Total employment declined. My first forecast was not as accurate as I would have liked. In retrospect, I used too many lags of data in my VAR and univariate models. Furthermore, I was working to reduce the root mean squared error a bit too hard. This time, I have one model, with three (kinda four) variables. I am, once again, employing a Vector Autoregression. My variables are:
Acceleration of (d^2) CPI inflation,
Acceleration of (d^2) Hourly wage inflation, and
Change (d) in Employment relative to the change.
After adjusting to the figures published for CPI, Average Hourly Private Sector Wage (AHW), and Total Employment (Emp), I have the following forecast results:
2015, 1st Quarter:
CPI: 118.6 (~2)
AHW: 13.30 (~0.37)
Emp: 63,010 (~1,050)
In the future, I'd like to try to tighten up my one point ahead forecasts, perhaps by combining multiple methods of estimation.