Stock-Watson Experimental Coincident, Leading and Recession Indexes
Stock and Watson Indicator Report
January 2000
The Experimental Index of Coincident Indicators (XCI) rose to 241.2 in January from 239.5 in December and 238.4 in November, based on the most recently available data. Over the three months from October to January, the XCI grew 6.4% at an annual rate, while during the three months from July to October, the XCI grew 2.9% at an annual rate. Over the six months from July to January, the XCI grew 4.6% at an annual rate.The Experimental Leading Index (XLI) for January is 5.3. 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 January to July. Because XCI growth has averaged approximately 3% annually since 1960, the January XLI forecasts continued growth well above 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 2% in January, indicating a 2% probability that the economy will be in a recession in July.
Of the indicators used to calculate the XLI, three made a positive contribution to the index, relative to trend: housing authorizations (building permits); manufacturers' unfilled orders; and exchange rates. Four of the indicators made negative contributions to the index, relative to trend: 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.
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 4% probability that the economy will be in a recession in July, slightly higher than the XRI.
Figure 4 shows the probability that the economy will be in a recession during each of the months from January to July, computed using data through January. Based on the data through January for the variables in the XRI, the probability that the economy was in a recession in January is 1%, the probability of being in a recession in February is 1%, and the probability of being in a recession in July is 2%. Based on the variables in the XRI-2, the probability that the economy was in a recession in January is 1%, the probability of being in a recession in February is 1%, and the probability of being in a recession in July is 4%.
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 January 2000
Experimental Leading Index (XLI) | 5.3 |
Experimental Recession Index (XRI) | 2 % |
Experimental Coincident Index (XCI) | 241.2 |
Nonfinancial Experimental Recession Index (XRI-2) | 4 % |
Components of the Experimental Leading Index
SeriesContributionHousing starts (building permits) | 1.5 |
Manufacturers' unfilled orders (durable goods industries) | 0.5 |
Trade-weighted exchange rate | 0.1 |
Part time work | -0.4 |
Interest rate on 10 year U.S. Treasury bonds | -0.3 |
Interest spread: 3 month commercial paper minus 3 month T-bills | -0.2 |
Interest spread: 10-year minus 1-year Treasury bonds | -0.1 |
Trend | 4.1 |
Recent values of the Indexes (based on revised data)
99:1299:1199:1099:0999:0899:0799:0699:0599:0499:0399:0299:01XLIXRIXCIXRI-2Components of the Experimental Leading IndexHousing BPMD Unf OrdExchange RatesPart Time Wk.10yr TBond Rate3mtCP,3mtTB Spr10yrTB,1yrTB SprTrend3.7 | 2.8 | 2.7 | 1.8 | 3.1 | 3.3 | 3.1 | 2.8 | 2.2 | 1.9 | 3.4 | 4.3 |
3 % | 6 % | 8 % | 13 % | 5 % | 4 % | 4 % | 3 % | 3 % | 6 % | 4 % | 4 % |
239.5 | 238.4 | 237.5 | 236.1 | 236.4 | 235.8 | 235.1 | 233.7 | 232.9 | 232.7 | 232.0 | 230.8 |
6 % | 6 % | 6 % | 7 % | 6 % | 7 % | 7 % | 10 % | 12 % | 7 % | 4 % | 4 % |
0.5 | 0.3 | -0.3 | -0.7 | 0.3 | 0.4 | 0.0 | -0.9 | -1.1 | -0.2 | 0.7 | 1.1 |
0.5 | -0.1 | -0.3 | 0.0 | -0.0 | -0.1 | -0.1 | -0.0 | -0.1 | -0.3 | -0.0 | 0.1 |
0.2 | 0.4 | 0.4 | 0.0 | -0.2 | -0.2 | -0.1 | -0.3 | -0.2 | 0.1 | 0.1 | 0.3 |
-0.4 | -0.3 | 0.0 | 0.2 | -0.2 | -0.2 | -0.3 | 0.1 | -0.2 | -1.1 | -0.8 | -0.3 |
-0.2 | -0.1 | -0.1 | -0.0 | -0.1 | -0.2 | -0.3 | -0.3 | -0.3 | -0.3 | -0.2 | -0.2 |
-0.7 | -1.1 | -1.2 | -1.4 | -0.5 | -0.3 | -0.3 | 0.0 | 0.1 | -0.3 | -0.5 | -0.5 |
-0.1 | -0.2 | -0.1 | -0.1 | -0.0 | -0.0 | 0.1 | 0.1 | -0.0 | -0.0 | -0.1 | -0.2 |
3.9 | 3.9 | 4.2 | 3.8 | 3.9 | 3.9 | 4.1 | 4.0 | 3.9 | 3.9 | 4.1 | 3.9 |
Additional Information
Background information and referenceson the experimental indexes
Description of the November 1997 revisionsto the XRI, XRI-2, and XLI
Historical valuesof experimental coincident, leading and recession indexes, 1959 - present (ASCII)
Go to the NBER home page.