An Analysis of the Potential of the European Commission Business and Consumer Surveys for Macroeconomic Forecasting

It is widely believed that survey-based confidence indicators provide a reasonably accurate picture of economic conditions. This paper examines whether data from the business and consumer surveys conducted for the European Commission might be useful for short-term macroeconomic forecasting. First, the internal consistency of the survey data is tested, to ascertain the extent to which reported outcomes from one month correspond to expectations data from previous months. The forecasting potential is then explored by comparing the survey data to their official data equivalents. The results from this analysis are mixed and suggest that the potential of the business survey data is limited. From these surveys only four variables produced findings that merit further investigation. The results from the consumer survey were more positive, and suggest that a number of statistical relationships exist between the survey series and the official data.