The Experimental Index of Coincident Indicators (XCI) fell to 235.9 in October from its September value of 238.2, based on the most recently available data. During the three months from July to October the XCI fell by 6.5% at an annual rate. During the previous three months from April to July, the XCI fell by 0.8% at an annual rate. Over the entire six months from April to October, the XCI therefore fell 3.7% at an annual rate.
A calculation based on the variables in the XCI indicates that the probability that the economy was in a recession in October is 97%. Historical values of this Experimental Concident Recession Index (XRI-C) are shown in Figure 4. Because the NBER Business Cycle Dating Committee recently declared a business cycle peak in March 2001, the XRI-C must be interpreted carefully. Because the current value of the XRI-C is nearly 100%, this index provides independent confirmation that the economy is still in a recession. The historical value of the index, which was 38% in March, indicates that, based on the (revised) data through March, it was unclear at that point whether the economy was in a recession or not. The slowdown of the past six months, and especially the sharp declines since September 11, allow us to see in hindsight the recession that, as of March, was not clear-cut.
The Experimental Leading Index (XLI) for October is -0.5. 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 October to April 2002.
Of the indicators used to calculate the XLI, four made a positive contribution to the index, relative to trend: exchange rates; the yield on 10-year U.S. Treasury bonds; 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. Three of the indicators made a negative contribution to the index, relative to trend: housing authorizations (building permits); manufacturers' unfilled orders; and part-time employment due to slack work.
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 35% in October, indicating a 35% probability that the economy will be in a recession in April 2002. 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 an 19% probability that the economy will be in a recession in April 2002.
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
| Experimental Leading Index (XLI) | -0.5 |
| Experimental Leading Recession Index (XRI) | 35 % |
| Experimental Coincident Index (XCI) | 235.9 |
| Experimental Coincident Recession Index (XRI-C) | 97 % |
| Nonfinancial Experimental Leading Recession Index (XRI-2) | 19 % |
| Series | Contribution |
|---|---|
| Housing starts (building permits) | -0.8 |
| Manufacturers' unfilled orders (durable goods industries) | -0.8 |
| Trade-weighted exchange rate | 0.5 |
| Part-time work | -3.2 |
| Interest rate on 10-year U.S. Treasury bonds | 0.2 |
| Interest spread: 3-month commercial paper minus 3-month T-bills | 1.3 |
| Interest spread: 10-year minus 1-year Treasury bonds | 1.0 |
| Trend | 1.4 |
| 01:09 | 01:08 | 01:07 | 01:06 | 01:05 | 01:04 | 01:03 | 01:02 | 01:01 | 00:12 | 00:11 | 00:10 | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| XLI | 0.9 | 2.3 | 1.4 | 0.5 | 2.3 | 2.4 | 3.3 | 4.0 | 4.3 | 3.1 | 3.3 | 3.0 |
| XRI | 16 % | 7 % | 14 % | 20 % | 7 % | 8 % | 6 % | 5 % | 4 % | 7 % | 12 % | 10 % |
| XCI | 238.2 | 240.0 | 239.9 | 239.3 | 240.5 | 240.4 | 241.5 | 241.7 | 241.8 | 242.5 | 242.8 | 242.9 |
| XRI-C | 83 % | 32 % | 31 % | 83 % | 48 % | 71 % | 38 % | 38 % | 44 % | 18 % | 11 % | 9 % |
| XRI-2 | 16 % | 10 % | 12 % | 18 % | 12 % | 18 % | 13 % | 8 % | 6 % | 11 % | 7 % | 9 % |
| Components of the Experimental Leading Index | ||||||||||||
| Housing BP | -0.5 | -0.2 | -0.3 | -0.3 | -0.3 | -0.4 | 0.1 | 0.9 | 1.1 | 0.1 | 0.5 | 0.1 |
| MD Unf Ord | -1.0 | -0.8 | -0.8 | -1.0 | -0.7 | -0.3 | -0.7 | -0.5 | -0.4 | 0.2 | 1.0 | 0.6 |
| Exchange Rates | 0.1 | -0.2 | -0.2 | -0.1 | -0.1 | -0.0 | 0.3 | 0.3 | 0.1 | -0.2 | -0.3 | -0.2 |
| Part Time Wk. | -1.6 | -0.0 | -1.2 | -1.6 | -0.4 | -0.2 | 0.4 | -0.4 | -0.7 | -0.7 | -1.1 | -1.0 |
| 10yr TBond Rate | 0.3 | 0.2 | 0.0 | -0.2 | -0.2 | -0.1 | 0.1 | 0.2 | 0.3 | 0.2 | 0.1 | 0.1 |
| 3mtCP,3mtTB Spr | 1.2 | 1.0 | 1.2 | 1.0 | 0.8 | 0.3 | 0.1 | 0.4 | 0.6 | 0.4 | 0.0 | 0.2 |
| 10yrTB,1yrTB Spr | 0.9 | 0.4 | 0.3 | 0.5 | 0.8 | 0.7 | 0.3 | 0.1 | 0.3 | -0.2 | -0.5 | -0.4 |
| Trend | 1.6 | 2.0 | 2.3 | 2.1 | 2.5 | 2.5 | 2.9 | 3.0 | 3.1 | 3.3 | 3.5 | 3.6 |
