Cyclical Indicators for the
United States
Carol Moylan
Third International Seminar on
Early Warning and Business Cycle Indicators
Moscow, Russian Federation
November 17-19, 2010
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Introduction
 The recent global financial crisis has highlighted
the need for statistical agencies around the world
to provide and feature up-to-date indicators that
can help identify potentially harmful trends in the
economy.
 For the most recent global financial crisis, the U.S.
national accounts did a good job of providing a
timely and accurate general picture of the current
state of the economy, but they did not perform as
well in providing indicators of unsustainable trends
in the economy.
 Worked with FRB in compiling integrated economic
accounts; began releasing annual estimates in
2006 and quarterly in 2010.
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Introduction
▪ In the United States, the Bureau of Economic
Analysis (BEA) and other statistical organizations like
Bureau of Labor Statistics, the Census Bureau, the
Federal Reserve Board and The Conference Board
produce a broad set of indicators to be used by U.S.
policy makers
▪ Were the analytical indicators available to warn
policymakers that this recession was imminent? This
presentation looks at major U.S. cyclical indicators
and their performance
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Cyclical indicators
▪ Prior to the development of the national accounts in
the 1930’s, there was only fragmentary and
sometimes conflicting data on the state of the
economy.
▪ In response to this critical gap in data, the
Department of Commerce worked to develop a
comprehensive and consistent measure of economic
activity in the United States.
▪ On November 30, the U.S. Department of Commerce
will be celebrating the 75th anniversary of the
beginning of U.S. national accounts statistics
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Cyclical Indicators
▪ First formal list (leading, lagging, and coincident)
published in 1938 by National Bureau of Economic
Research
▪ Published and maintained by:
 BEA, 1975-95
 The Conference Board, beginning in 1996
▪ Composite indicators:
 Offer both strengths and weaknesses
 Widely monitored, but subject to skepticism
 As early as 1947, CI were criticized for their reliance
on trend without the understanding of underlying
macroeconomic relationships and on “measurement
without theory”
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Cyclical indicators
▪ Leading indicators, a few examples
 weekly hours in manufacturing (BLS)
 weekly initial claims for unemployment
insurance (DOL)
 monthly real manufacturers' new orders of
consumer goods and materials (CF)
 quarterly real residential fixed investment
(BEA from national accounts)
 monthly real money supply (M2) (CF)
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Example of a Leading Indicator
Average Weekly Hours - Manufacturing
43
42
Hours
41
40
39
38
37
60
65
70
75
80
85
90
95
00
05
10
Source: Bureau of Labor Statistics
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Cyclical indicators
▪ US coincidence indicators





real GDP
real personal income less transfer payments
real manufacturing and trade sales
industrial production index
employees on non-agricultural payrolls
▪ US lagging indicators
 ratio of real manufacturing and trade inventories to
real sales
 average duration of unemployment (in weeks)
 average prime rate charged by banks
 ratio of consumer installment credit outstanding to
personal income
 Change in the consumer price index for services
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Composite indicator
▪ Leading, lagging and coincident cycle
indicators
▪ To trace business cycle, turning points and
economic growth
▪ composite indicator is diversified in
component data included with minimum
duplication
▪ more reliable than individual analytical
indicators
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Performance Leading up to Last Recession
▪ Traditional leading indicators did point to
signs of coming recession in 2007 one year
before the overall economy peaked in
December 2007
▪ Information not as precise as desirable
 No information on:
 severity
 beginning point
▪ Trigger points different from recent previous
recessions
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New developments
▪ New integrated national accounts could
provide improved understanding, household,
non-financial, financial, government and
external sector
▪ New groupings of cyclical indicators could
provide an enhanced “message” or “story”
the statistics deliver
▪ E.g. housing sector and financial sector.
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New Grouping in Housing Sector
Residential Fixed Investment
110
100
Quantity Index
90
80
70
Housing and Personal Income
60
2.4
50
40
2.0
30
20
1.6
1980
1985
Source: BEA
1990
1995
2000
2005
2010
1.2
0.8
0.4
1970
1975
1980
1985
1990
1995
2000
2005
Value of household real estate assets / Personal income
Household total liabilities / Personal income
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Imbalance in Financial Sector
1,600
1,600
1,400
1,400
1,200
1,200
1,000
1,000
800
800
600
600
400
400
200
200
0
Index Level
Billions of dollars
S&P 500 vs. After Tax Profits
0
1980
1985
1990
1995
2000
2005
2010
S&P 500
After Tax Profits with IVA and CCAdj
Source: Bureau of Economic Analysis and Standard & Poor’s
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Conclusions
▪ the United States prepares some of the most
useful and detailed analytical indicators in the
world.
▪ the evaluation of certain key subsectors of
the economy could be improved if BEA
prepared and disseminated a suite of
additional cyclical indicators using the
leading, lagging and coincidence properties of
the indicators.
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