In a world without crystal balls, there are few reliable tools for economists to predict future economic activity. As a response to the desire of politicians, business leaders, and the general public to have information regarding the future business climate, economists have developed forecasting tools such as indexes of economic activity. These indexes, which track the combined activity of a series of indicators over time, have been developed with the goal of forecasting future activity. Former Vice President of the Conference Board, Edgar R. Fiedler approaches the subject of precision in forecasting within his paper The Future Lies Ahead. He describes economic forecasting as a maddening occupation that is always fascinating, exciting and rewarding; a profession that is regularly exasperating, infuriating, and occasionally even deranging. In our own experience of building an index for Central Oregon, we have come largely to the same conclusion. Yet as Fiedler remarks, forecasting, no matter by what method it is done, is an intrinsic part within every community’s decision process.

Philip Klein, Professor of Economics at Penn State University identifies the two most prominent current forecasting techniques to be the leading indicator method and the construction and interpretation of econometric models. These two camps of thought have at times battled with one another for higher ground in the economic literature. However, it now appears that a consensus has been reached that these two techniques can be complementary, as they can together assist in the complex task of monitoring business cycle developments. According to Klein, the public has the right to be skeptical over predictions of the future when no one has certain knowledge about the future, or even of the present. In fact, much of the knowledge of the recent past is incomplete at best. In light of this, the saying that “an imprecise forecast is better than none” has much value. Indeed, in our review of the economic literature, it seems that all agree that the current system of forecasting economic activity using indexes of leading indicators, while flawed, is still the best available option.