FORECASTING INVESTMENT WITH MODELS AND SURVEYS OF CAPITAL-SPENDING

The U.S. Department of Commerce regularly surveys businesses on their plans for capital investment. This article assesses the contribution t hat these surveys make to forecasts of business investment, once other economic variables are taken into account. The author finds that the surveys have only marginally improved forecasts since the 1970s. For s hort-term forecasts, the history of investment spending and output doe s more to reduce forecast errors than do the surveys. For forecasts of a year or more, the survey information is not as useful as that in th e historical movements of various macroeconomic indicators. The survey s do not cover all types of businesses or all industries, and the capi tal spending that respondents report does not necessarily match the co ncept of investment reported in the national accounts. Most significan tly, the relationship between respondents' capital spending and total investment has been changing since the 1970s. The survey was a more ac curate indicator of capital purchases when the ratio of respondents' c apital spending to total investment was more stable. 47