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                    Surveys not accurate predictors of future: RBA

http://www.smh.com.au/news/0201/18/biztech/biztech9.html

                     Business and consumer sentiment surveys are limited
in what they
                     could convey about the future path of the economy,
Reserve Bank
                     of Australia researchers have warned.

                     RBA researchers Ivan Roberts and John Simon said
indices of
                     business and consumer sentiment received widespread
media
                     coverage and were closely watched by market
economists despite
                     their limited success as leading indicators.

                     "There is reason to suspect that surveyed
respondents' forecasts
                     offer little more information about the future path
of the economy
                     than a weighted average of lagged economic
variables," the
                     researchers said in a paper published on the bank's
Web site.

                     Mr Roberts and Mr Simon found that lagged economic
indicators
                     (such as changes in gross domestic product, job
vacancies and the
                     cash rate) could explain a substantial proportion
of the variation in a
                     number of backward and forward-looking sentiment
indices.

                     "This does not rule out the possibility that they
may be useful for
                     forecasting," they said. However, the researchers
found that when
                     current economic information was filtered from the
sentiment
                     indices, in most cases their predictive ability was
minimal.

                     Mr Roberts and Mr Simon said a small contribution
to forecasting
                     employment growth came from surveys such as the Roy
Morgan
                     consumer confidence rating, the National Australia
Bank's actual
                     business conditions index and expected employment
outlook over
                     the next three months, and the "second question" in
the Roy
                     Morgan and Westpac/Melbourne Institute consumer
surveys. The
                     "second question" in these surveys asks about
anticipated personal
                     financial conditions over the coming year.

                     "The second question of both consumer confidence
surveys also
                     appears to have some ability to predict
recessions," the researchers
                     said. "Outside of these results there is little
evidence that the
                     surveys tell us anything we didn't already know."

                     AAP