Our Approach to Forecasting and Analysis

Moody's Analytics methodological approach.

The Moody's Analytics approach to forecasting the U.S. and its regional economies is informed by both national and regional analysis. The process starts each month with the U.S. forecast. The Moody’s Analytics U.S. macro model is a large, 1,600-equation simultaneous-equilibrium model that allows for interrelationships among all of the sectors of the U.S. economy: production, income, financial markets, consumer spending, labor markets and so forth. Our chief economist, Mark Zandi, and his staff discuss the economic outlook and refine the forecast so that it accurately reflects our view of where the U.S. economy is headed, both in the near term and over the longer run.

After the U.S. forecast is finalized, those results are used in the regional forecasts. The national drivers are run through models for each state and metro area. In addition to the national forecasts, regional variables such as costs of doing business are included in the regression equations whenever possible. Demographics and industrial structure also play key roles in defining the regional outlooks within the context of the U.S. macro forecast. Once the model-based forecast is derived, analysts look at each state and metro area forecast to make sure the results are consistent with both the national forecast and regional-specific conditions.

At the end of the state and metro forecasting process, the sum of states and sum of metro area forecasts are checked against the U.S. forecast for variables such as employment and housing permits. We do not require the sums of the regional forecasts to add up to the national total—the sums of states for most concepts do not equal the U.S. in history—but we do check them against one another to ensure that the shape of the national forecast is consistent with the regional forecasts.