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Barometric Forecasting Techniques
Barometric techniques examine the relationships between causal or coincident events to predict future events. This approach is based on the logic that key current developments can serve as a barometer of the future. This approach assumes the key developments can be identified, measured and recorded as a statistical time series. The barometric or what is also called the leading indicators approach to forecasting is often traced to work done at the National Bureau of Economic Research from the 1920s through the 1940s.
A leading indicator predicts three to six months in the future another event. Examples of indicators include: payroll employment, personal income less transfer payments, an index of industrial production, stock prices, changes in business inventories, consumer expectations, building permits, new orders for goods and materials and retail sales.Caveats about Barometric Forecasting and Leading Indicators
"Like all forecasting techniques, the leading indicator method has its limitations. For instance:
"Despite its drawbacks, a leading indicator series, in conjunction with other forecasting results, can help economists, business and government predict and prepare for significant changes in the economic environment."
from "Forecasting the Economy with Leading Economic Indicators" at URL http://www.hawaii.gov/dbedt/hecon/he4-99/forecast.html
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