What is a Consensus Forecast?

A consensus forecast is a prediction regarding the future that is shared by a number of expert analysts in the related field. A forecast of this type can occur in a number of settings, and is sometimes used by governments as means of preparing courses of action that help to move the general economy in a desirable direction. The consensus forecast may also be related to the movement of stock related to a specific company or group of companies in the marketplace, given known factors that are likely to influence either the market or the perceptions of investors regarding those stocks.

As it relates to economic projections prepared for use by local, state, and federal governments, consensus forecasting involves obtaining opinions from individuals who are considered leading experts. Those experts may be governmental appointees specifically charged with monitoring the movement of the economy or independent experts with proven track records for evaluating relevant factors and accurately predicting what is likely to happen with the economy over a specific period of time. The results of the forecast are often used to develop economic strategies that may help minimize upcoming trends that are less desirable, such as recession, often by implementing legislation or policies that inhibit the movement and gradually help restore some degree of equilibrium to the economy.

In the business world, companies may utilize the concept of a consensus forecast as a means of evaluating how shares of stock will perform in upcoming market situations. The focus may be on shares issued by the company, the shares of competitors, or stocks associated with the industry in general. Here, the idea is to get an idea of how to position the company so that it can avoid losses if possible, or possibly utilize upcoming market conditions to best advantage to gain market share or enjoy an increase in the market value of its stock offerings.

A defining characteristic of a consensus forecast is that the projections are made by individuals and committees that have the status of experts who consider all aspects relevant to making the predictions. When a consensus forecast is developed responsibly, the outcome can be a valuable tool that helps prepare for tougher economic times by minimizing risk and possibly reducing losses, or alerts specific parties to upcoming opportunities that may not have been identified until it was too late to enjoy the maximum amount of benefits. For this reason, many businesses pay close attention to the results of general economic forecasts prepared by governments, as well as forecasts that have to do specifically with their own industries.