Forecasting Manufacturing Output Growth Using Firm-Level Survey Data∗

Traditionally forecasts of macroeconomic aggregates are extracted from prospective qualitative survey data by relating official data on the aggregate to both the proportion of survey respondents who are “optimists” and the proportion who are “pessimists”. But there is no reason to focus on these proportions to the exclusion of other possible means of aggregating and quantifying the underlying panel of respondent or firm-level survey responses. Accordingly in this paper we show how the panel of firm-level responses underlying these proportions can be exploited to derive forecasts of (aggregate) manufacturing output growth that do not lose information that may be contained in the pattern of individual responses. An application using firm-level prospective survey data from the Confederation of British Industry shows that the forecasts of manufacturing output growth derived using these “disaggregate” methods mark an improvement over the so-called “aggregate” methods based on use of the proportions data alone.