The Performance of the BBER Forecast: Forecast Relatively Accurate Despite Economic Shocks.

• Author: Sheehan, Derek
• Position: MONTANA ECONOMIC REPORT

The year 2020 certainly was unexpected and unprecedented, but possibly less of a forecasting challenge for Montana's real nonfarm earnings. Forced business closures and massive unemployment in the second quarter of the year led to the largest decline in quarterly nonfarm earnings (8.2%). This decline immediately proceeded the largest increase (5.3%) in the third quarter of 2020. Despite these unpredictable swings, the Bureau of Business and Economic Research's annual forecasts projected growth of only 0.7 percentage points higher than occurred (2.3% versus 1.6%).

To assess how the BBER forecasts have stacked since 2002, Figure 1 depicts the difference between actual and projected inflation-adjusted nonfarm earnings. The BBER forecast for 2021 was 4.8% growth as earnings rebounded from the slow growth in 2020. While data is not yet complete for 2021, annual growth is expected to rise 4.3%, given its current pace through two quarters, a potential error of 1%. The U.S. Bureau of Economic Analysis will revise these estimates in the coming years, but when looking at Figure 1, the impacts of the COVID-19 pandemic on annual nonfarm earnings doesn't appear to be substantial.

Forecasted growth since 2002 missed the mark by 1.6 percentage points per year with no evidence of bias in an...