The Experimental Index of Coincident Indicators (XCI) fell to 227.5 in September from 228.4 in August and 227.7 in July, based on the most recently available data. Over the three months from June to September, the XCI grew 0.7% at an annual rate, while during the three months from March to June, the XCI grew 3.4% at an annual rate. Over the six months from March to September, the XCI grew 2.1% at an annual rate.
The Experimental Leading Index (XLI) for September is 1.5. 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 September to March 2000. Because XCI growth has averaged approximately 3% annually since 1960, the September XLI forecasts growth at approximately half its historical average rate.
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 17% in September, indicating a 17% probability that the economy will be in a recession in March 2000.
Of the indicators used to calculate the XLI, two made a positive contribution to the index, relative to trend: manufacturers' unfilled orders; and part-time employment due to slack work. Three of the indicators made negative contributions to the index, relative to trend: housing authorizations (building permits); 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. Exchange rates and the yield on 10-year U.S. Treasury bonds made no net contribution to the XLI, relative to trend.
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 lower probability that the economy will be in a recession in March 2000. Based on data through September, the XRI-2 is 8%.
Figure 4 shows the probability that the economy will be in a recession during each of the months from September to March 2000, computed using data through September. Based on the data through September for the variables in the XRI, the probability that the economy was in a recession in September is 2%, the probability of being in a recession in October is 2%, and the probability of being in a recession in March is 17%. Based on the variables in the XRI-2, the probability that the economy was in a recession in September is 1%, the probability of being in a recession in October is 1%, and the probability of being in a recession in March is 8%.
These statistics reflect a sharp decline in economic activity in September. The drop in the coincident index reflects declines in personal income and industrial production. The low value of the XLI, and the notable increase in the recession probability reported by the XRI, mainly reflect the decline in building permits in September and the increase in the spread between short term private and Treasury interest rates. However, many of these statistics reflect the effects of Hurricane Floyd on housing construction, electricity production, employment, and other aspects of economic activity. These effects are by their nature one-time, which suggests that the September declines need not indicate a future cyclical downturn. Because it is difficult to isolate the economic consequences of Hurricane Floyd, no attempt has been made to adjust the experimental indexes for its effects. Any such adjustment would, however, make the six-month outlook less pessimistic than suggested by the forecasts reported here.
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) | 1.5 |
| Experimental Recession Index (XRI) | 17 % |
| Experimental Coincident Index (XCI) | 227.5 |
| Nonfinancial Experimental Recession Index (XRI-2) | 8 % |
| Series | Contribution |
|---|---|
| Housing starts (building permits) | -0.7 |
| Manufacturers' unfilled orders (durable goods industries) | 0.1 |
| Trade-weighted exchange rate | 0.0 |
| Part time work | 0.3 |
| Interest rate on 10 year U.S. Treasury bonds | 0.0 |
| Interest spread: 3 month commercial paper minus 3 month T-bills | -1.4 |
| Interest spread: 10-year minus 1-year Treasury bonds | -0.1 |
| Trend | 3.4 |
| 99:08 | 99:07 | 99:06 | 99:05 | 99:04 | 99:03 | 99:02 | 99:01 | 98:12 | 98:11 | 98:10 | 98:09 | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| XLI | 2.9 | 3.0 | 2.8 | 2.5 | 1.8 | 1.6 | 3.1 | 3.9 | 3.4 | 4.0 | 4.3 | 2.5 |
| XRI | 7 % | 6 % | 5 % | 4 % | 4 % | 8 % | 4 % | 5 % | 8 % | 8 % | 4 % | 10 % |
| XCI | 228.4 | 227.7 | 227.1 | 225.8 | 225.4 | 225.2 | 224.4 | 223.3 | 223.1 | 222.2 | 221.4 | 220.4 |
| XRI-2 | 6 % | 7 % | 7 % | 10 % | 12 % | 7 % | 5 % | 4 % | 5 % | 5 % | 4 % | 7 % |
| Components of the Experimental Leading Index | ||||||||||||
| Housing BP | 0.3 | 0.4 | 0.0 | -0.9 | -1.1 | -0.2 | 0.7 | 1.2 | 0.7 | 0.9 | 1.1 | 0.4 |
| MD Unf Ord | -0.0 | -0.1 | -0.1 | -0.0 | -0.1 | -0.3 | -0.0 | 0.1 | -0.3 | -0.6 | -0.5 | -0.0 |
| Exchange Rates | -0.2 | -0.2 | -0.1 | -0.3 | -0.2 | 0.1 | 0.1 | 0.3 | 0.7 | 0.6 | 0.1 | -0.5 |
| Part Time Wk. | -0.1 | -0.2 | -0.3 | 0.1 | -0.2 | -1.1 | -0.8 | -0.3 | 0.1 | 0.8 | 1.2 | 1.0 |
| 10yr TBond Rate | -0.1 | -0.2 | -0.3 | -0.3 | -0.3 | -0.3 | -0.2 | -0.2 | -0.1 | 0.1 | 0.3 | 0.3 |
| 3mtCP,3mtTB Spr | -0.5 | -0.3 | -0.3 | 0.0 | 0.1 | -0.3 | -0.5 | -0.5 | -0.9 | -1.2 | -1.5 | -1.9 |
| 10yrTB,1yrTB Spr | -0.0 | -0.0 | 0.1 | 0.1 | -0.0 | -0.0 | -0.1 | -0.2 | -0.4 | -0.3 | -0.0 | -0.2 |
| Trend | 3.6 | 3.6 | 3.8 | 3.7 | 3.6 | 3.7 | 3.8 | 3.5 | 3.6 | 3.6 | 3.7 | 3.4 |
