June 30, 2000

Stock and Watson Indicator Report

May 2000
The Experimental Index of Coincident Indicators (XCI) rose to 243.5 in May from 243.3 in April and 242.2 in March, based on the most recently available data. Over the three months from February to May, the XCI grew 3.3% at an annual rate, while during the three months from November to February, the XCI grew 5.5% at an annual rate. Over the six months from November to May, the XCI grew 4.4% at an annual rate.

The Experimental Leading Index (XLI) for May is 1.4. This index, based on seven leading indicators, is a forecast of the percentage growth of the XCI (at an annual rate) over the next six months, from May to November. The May XLI forecasts continued growth, but at a substantially slower rate than earlier this year.

Of the indicators used to calculate the XLI, two made a positive contribution to the index, relative to trend: manufacturers' unfilled orders; and the yield on 10-year U.S. Treasury bonds. Five of the indicators made negative contributions to the index, relative to trend: housing authorizations (building permits); exchange rates; part-time employment due to slack work; the premium on 3-month commercial paper over 3-month U.S. Treasury bills; and the spread between the yield on 10-year vs. 1-year U.S. Treasury bonds.

Based on the most recent data, the Experimental Recession Index (XRI), which estimates the probability that the economy will be in a recession six months later, was 12% in May, indicating a 12% probability that the economy will be in a recession in November.

The alternative experimental recession index (the XRI-2), which is based on seven leading indicators that do not include interest rates or interest rate spreads, estimates a 9% probability that the economy will be in a recession in November.

Figure 4 shows the probability that the economy will be in a recession during each of the months from May to November, computed using data through May. Based on the data through May for the variables in the XRI, the probability that the economy was in a recession in May is 1%, the probability of being in a recession in June is 2%, and the probability of being in a recession in November is 12%. Based on the variables in the XRI-2, the probability that the economy was in a recession in May is 1%, the probability of being in a recession in June is 2%, and the probability of being in a recession in November is 9%.

For further information contact:
James Stock phone: (617) 496-0502 email: james_stock@harvard.edu
Mark Watson phone: (609) 258-4811 email: mwatson@princeton.edu

THESE FORECASTS AND THEIR INTERPRETATION ARE THOSE OF THE PRINCIPAL INVESTIGATORS AND DO NOT NECESSARILY REPRESENT THE VIEWS OF OTHER RESEARCHERS AT THE NBER OR THE DIRECTORS OR OFFICERS OF THE NBER. THIS IS NOT A PUBLICATION OF THE NBER. ANYONE WISHING TO REFER TO IT SHOULD CITE THE SOURCE AS "JAMES STOCK AND MARK WATSON." 







 
Data for May 2000 
 









 Experimental Leading Index (XLI)        1.4 



 Experimental Recession Index (XRI)       12 % 



 Experimental Coincident Index (XCI)      243.5 



 Nonfinancial Experimental Recession Index (XRI-2)        9 % 




















Components of the Experimental Leading Index 






  Series   Contribution  



 Housing starts (building permits)

       -1.5 



 Manufacturers' unfilled orders (durable goods industries)

        0.7 



 Trade-weighted exchange rate

       -0.1 



 Part time work   

       -0.7 



 Interest rate on 10 year U.S. Treasury bonds

        0.1 



 Interest spread: 3 month commercial paper minus 3 month T-bills

       -0.9 



 Interest spread: 10-year minus 1-year Treasury bonds

       -0.2 



 Trend           

        4.0 





















Recent values of the Indexes (based on revised data)






00:0400:0300:0200:0199:1299:1199:1099:0999:0899:0799:0699:05


 XLI         2.7         3.3  
       4.0         5.0         3.9  
       3.0         2.7         1.8  
       3.1         3.3         3.4  
       3.1 


 XRI 
     3 %
     2 %
     2 %
     2 %
     4 %
     7 %
     9 %
    15 %
     6 %
     5 %
     3 %
     3 %



 XCI 
      243.3 
      242.2 
      241.5 
      241.1 
      239.4 
      238.3 
      237.4 
      235.9 
      236.4 
      235.8 
      235.1 
      233.7 



 XRI-2 
     8 %
     6 %
     4 %
     3 %
     4 %
     4 %
     5 %
     5 %
     5 %
     5 %
     5 %
     7 %



  Components of the Experimental Leading Index  


 Housing BP             -1.1  
       -0.8  
        0.3  
        1.2  
        0.7  
        0.5  
       -0.3  
       -0.7  
        0.3  
        0.5  
        0.3  
       -0.6  

 

 MD Unf Ord              0.5  
        0.4  
        0.5  
        0.6  
        0.5  
       -0.1  
       -0.3  
        0.0  
       -0.0  
       -0.1  
       -0.1  
       -0.0  

 

 Exchange Rates         -0.0  
       -0.1  
       -0.0  
        0.1  
        0.2  
        0.4  
        0.4  
        0.0  
       -0.2  
       -0.2  
       -0.1  
       -0.3  

 

 Part Time Wk.          -0.1  
        0.1  
        0.0  
       -0.4  
       -0.4  
       -0.3  
        0.0  
        0.2  
       -0.2  
       -0.2  
       -0.3  
        0.1  

 

 10yr TBond Rate         0.3  
        0.2  
       -0.1  
       -0.3  
       -0.2  
       -0.1  
       -0.1  
       -0.0  
       -0.1  
       -0.2  
       -0.3  
       -0.3  

 

 3mtCP,3mtTB Spr        -0.6  
       -0.1  
       -0.1  
       -0.2  
       -0.7  
       -1.1  
       -1.2  
       -1.4  
       -0.5  
       -0.3  
       -0.3  
        0.0  

 

 10yrTB,1yrTB Spr       -0.4  
       -0.5  
       -0.4  
       -0.1  
       -0.1  
       -0.2  
       -0.1  
       -0.1  
       -0.0  
       -0.0  
        0.1  
        0.1  

 

 Trend                   4.2  
        4.1  
        3.9  
        4.1  
        3.9  
        3.9  
        4.2  
        3.8  
        3.9  
        3.9  
        4.1  
        4.0