February 6, 2004

Stock and Watson Indicator Report

November 2003

The Experimental Index of Coincident Indicators (XCI) rose to 239.3 in November from 237.8 in October, based on the most recently available data. During the three months from August to November the XCI rose by 5.4% at an annual rate. During the three months from May to August, the XCI rose by 2.6% at an annual rate. Over the six months from April to October, the XCI therefore rose by 4.0% 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 November is 1%. Historical values of this Experimental Coincident Recession Index (XRI-C) are shown in Figure 4.

The Experimental Leading Index (XLI) for November is 3.7. This index, based on seven leading indicators, is a forecast of the percentage growth of the XCI (at an annual rate) over the six months from November 2003 to May 2004.

Of the indicators used to calculate the XLI, all made a positive contribution to the index, relative to trend: housing authorizations (building permits); manufacturers' unfilled orders; exchange rates; part-time employment due to slack work: 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; relative to trend.

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 7% in October indicating a 7% probability that the economy will be in a recession in May 2004. 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 6% probability that the economy will be in a recession in May 2004.

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 November 2003

Experimental Leading Index (XLI)	3.7
Experimental Leading Recession Index (XRI)	7 %
Experimental Coincident Index (XCI)	239.3
Experimental Coincident Recession Index (XRI-C)	1 %
Nonfinancial Experimental Leading Recession Index (XRI-2)	6 %

Components of the Experimental Leading Index

Series	Contribution
Housing starts (building permits)	0.4
Manufacturers' unfilled orders (durable goods industries)	0.7
Trade-weighted exchange rate	0.1
Part-time work	0.3
Interest rate on 10-year U.S. Treasury bonds	0.1
Interest spread: 3-month commercial paper minus 3-month T-bills	0.5
Interest spread: 10-year minus 1-year Treasury bonds	0.8
Trend	0.8

Recent values of the Indexes (based on revised data)

	03:10	03:09	03:08	03:07	03:06	03:05	03:04	03:03	03:02	03:01	02: 12	02:11
XLI	4.5	2.8	3.9	4.1	3.8	2.7	1.1	1.1	1.9	2.7	3.0	2.1
XRI	5 %	8 %	5 %	4 %	5 %	9 %	17 %	14 %	12 %	11 %	9 %	10 %
XCI	237.8	237.3	236.2	235.9	234.9	234.7	234.4	235.1	235.3	235.8	235.1	236.0
XRI-C	1 %	1 %	4 %	3 %	16 %	25 %	55 %	34 %	26 %	12 %	48 %	16 %
XRI-2	4 %	6 %	5 %	6 %	7 %	9 %	11 %	10 %	7 %	7 %	7 %	12 %
Components of the Experimental Leading Index
Housing BP	1.3	0.8	1.1	0.6	0.9	0.4	-0.8	-0.9	-0.2	0.3	1.2	0.3
MD Unf Ord	0.9	0.6	0.6	0.5	0.7	0.6	0.2	0.1	-0.1	0.0	-0.0	-0.4
Exchange Rates	-0.3	-0.5	0.1	0.4	0.1	-0.2	-0.0	0.3	0.3	0.0	-0.2	-0.3
Part Time Wk.	0.7	0.4	0.7	0.5	0.4	0.2	-0.1	-0.3	-0.2	-0.1	0.1	-0.0
10yr TBond Rate	-0.1	-0.4	-0.5	-0.2	0.1	0.1	0.1	0.1	0.1	-0.1	-0.2	-0.1
3mtCP,3mtTB Spr	0.6	0.6	0.7	0.7	0.8	0.8	0.8	0.9	0.9	1.0	0.9	0.9
10yrTB,1yrTB Spr	0.8	0.8	1.1	1.2	0.7	0.4	0.7	0.7	0.7	0.8	0.8	0.9
Trend	0.5	0.5	0.2	0.4	0.3	0.4	0.3	0.4	0.4	0.8	0.5	0.8