Milford chronicle., 1954-02-26
Philadelphia Federal Reserve
Bank Reports on The Art of
FOrecasting And The Budget

BUSINESS forecasts currently give
great appearance of unanimitv.
perhaps more so than at any other
time in the postwar period. Some
experts, it is true, have been de-
veloping and experimenting with
new techniQues for evaluating bus
mess trends, but more and more
fOfecasters have been making pre-
dictions which fall into a common
pattern.
This large number of fairly uni
form predictions results from a
combination of circumstances in
cluding: % a readily understand
able system of national accounts
available at tool; (2) more people
making forecasts; (3) a feeling
among fOrecasters, perhaps sub
consciously that there is security in
being one of the majority; and (4)
the use of averages.
This last item is especially peril
nent to the 1854 predictions, for a
look behind the averages suggests
that current unanimity may not be
quite so unanimous after all. The
majority Of forecasters say that
business in 1854, on the average
viii be somewhat less than in 1853.
Total gross national product. thew
predict, may be off by something
like 5 per cent. This average, how
ever, conceals differences in the
pattern of the decline. Some econ
0mists believe the downturn will be
brief and will be followed bv a re-
VlFal later in the year. Others feel
that the decline will be short. but
that that business will level off on
high plateau. Still others are in
cllned to think that the downtrend
Will persist throughout the year.
obviously, these three forecasts are
not equally pessimistic, although
the averages may not so indicate.
AS far as duration is concerned.
It may be worthwhile to glance
back at figures for the 1949 and
l937-I938' recessiOns. Periods from
peak to trough vary depending on
which Indicator one looks at. bbt
IN general it took perhaps a wear
for the full decline to run IFS
course. This does not mean. of !
course, that the current downtrend |
VIII necessarily last that long; and !
even II 1t did, some indicators show
tnat the decline really began last
summer or spring. A look back !
ward does remind us, however, that |
adjustments are apt to take time.
Government is FOrecasting, Too
In making their decisions. bust
nessmen must make some assump-
ions as to what lies ahead. The
men responsible for making up the
Federal budget, issued last month /
for fiscal year 1866, had a still |
harder task; they had to consider
not only the impact of business |
trends on the budget but also the
impact Of the budget on business
trends.
The new budget is based on a |
philosophy that the economy will |
be benefited by Government EFF !
cheney and economy" by a "bal-
inced budget and tax reiuctii an : s.
ma by the encouragement of lin
uatlve and investment" Tins ev-
'endltures in fiscal year 1866 are
stlmated to be $685. billion. or a
eduction of about S5 billion from
stlmated spending in fiscal 1854.
lost OF this reduction will come
" OF national security expendi-
lFes' rejecting (amOng other
llngs) shifts in emphasis" in the
eIense program. Considerably less
10 be spent for army and navv
elense, and somewhat more for
tonic energy, air power, CONT
etaI defense and the mutual mill
ary program. Receipts are esti-
lated to be $62.7 billion, or about
3 billion less than they are ex-
ected to be in fiscal 1854. This cut ,
ELECTS primarily the reduction in i,
ersonal income and excess profits
axes which became effective at the
eglnnlng Of the year and lower !
eYenues from further tax revisions :
FOposed by the President. The net :
esult is an estimated budget de-
CIT OF nearly So billion. On a cash
asls, however, the Government ex-
ects to take in a little more than
pays out.
Ihese estimates are based on the