Tomorrow’s update on US personal consumption spending for August is projected to rise 0.4% vs. the previous month, based on The Capital Spectator’s median econometric point forecast. The prediction reflects a strong rebound after July’s 0.1% decrease.
Compared with a trio of consensus estimates based on recent surveys of economists, The Capital Spectator’s median forecast for August is at the low end of the projections.
Here’s a closer look at the numbers, followed by brief summaries of the methodologies behind the forecasts that are used to calculate The Capital Spectator’s median prediction:
VAR-3: A vector autoregression model that analyzes three economic time series in context with personal consumption expenditures. The three additional series: US private payrolls, personal income, and industrial production. The forecasts are run in R with the “vars” package.
R-1: A linear regression model that analyzes the historical record of personal consumption expenditures in context with retail sales. The historical relationship between the variables is applied to the more recently updated retail sales data to project personal consumption expenditures. The computations are run in R.
TRI: A model that’s based on combining point forecasts, along with the upper and lower prediction intervals (at the 95% confidence level), via a technique known as triangular distributions. The basic procedure: 1) run a Monte Carlo simulation on the combined forecasts and generate 1 million data points on each forecast series to estimate a triangular distribution; 2) take random samples from each of the simulated data sets and use the expected value with the highest frequency as the prediction. The forecast combinations are drawn from the projections generated by the models above, as computed in in R with the “triangle” package.