The Real-Time Macro Content of Corporate Financial Reports: A Dynamic Factor Model Approach

Abstract

We use a standard dynamic factor model to extract new factors based on the real-time flow of accounting data from the corporate financial reports. The extracted accounting factors exploit across-sector comovements in corporate value creation drivers and can be used together with other closely watched economic indicators. We show that our weekly updated accounting factors are incrementally relevant for nowcasting and forecasting major components of economic output in the BEA’s National Income and Product Accounts. Overall, our paper pioneers a new approach to incorporating the continuous flow of accounting data within the context of dynamic factor models.

Keywords: Corporate Financial Reports; Nowcasting; Forecasting; Macro Accounting.

JEL Classification: E01, E32, E60, M41.