Provisional Estimates of Output Miss Economic Turning Points ? Karen

Initial estimates of aggregate output and its components are based on very incomplete source data, so they may not fully capture shifts in economic conditions. In particular, if those estimates are based partly on trends in preceding quarters, one would expect to see provisional estimates overstating activity when actual output is decelerating and understating it when actual output is accelerating. We examine this issue using the Real Time Data Set for Macroeconomists, which contains contemporaneous estimates of output and its components beginning in the late 1960s, as well as financial-market information and other data. Our results indicate that provisional estimates do not fully capture accelerations and decelerations, suggesting some tendency for provisional estimates to miss economic turning points. We also consider the related question of whether better use of contemporaneous data could improve the quality of provisional estimates. We find that provisional estimates do not represent optimal forecasts of the current estimates, but that the improvement in forecast quality from including additional data appears to be quite small. Karen Dynan Doug Elmendorf Stop 93 Stop 80 Federal Reserve Board Federal Reserve Board Washington, DC 20551 Washington, DC 20551 (202)-452-2553 (202)-452-3623 [email protected] [email protected]