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Trusted Insights for Business Worldwide
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Decision Making and Business Cycle Indicators
International Seminar on Timeliness, Methodology, and Comparability of Rapid Estimates of Economic
TrendsOttawa
May 27, 2009Ataman OzyildirimAssociate Director, U.S. and Global Indicators [email protected]
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Overview:
What is The Conference Board and what does it do?
Economic indicator programs
Global business cycle indicators program
Real time indicators
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Economic Indicators at The Conference Board
Long tradition of economic measurement work
Wide-range of indicators Help-wanted Consumer confidence U.S. composite coincident and leading index Productivity and per capita income levels
and growth rates globally Business confidence Employment Trends Index
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U.S. Business Cycle Indicators Program
Transfer from BEA 1996
Advisory board
Evaluation and updating composite indicators, 1996
“Real” time analytic and production goals
Introduction of statistical imputation
Introduction of indexes for 10 countries and regions
www.conference-board.org/economics/bci
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Global Business Cycle Indicators
Modeled after U.S. system of monthly indicators
Economic theory informs selection of indicators but country specific features influence choice
Objectivity, consistency, and reliability
Composite indexes bring cycles and turning points into focus
Used in defining business cycles and anticipating turning points in business cycles
Help in forecasting and economic outlook
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Coincident Economic Index helps define business cycles; Leading Economic Index helps predict turning points
Employment
Personal Income
Manufacturing and Trade Sales
Industrial Production
120
100
80
60
40
120
100
80
60
40
20
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
US Leading Economic Index (right scale)US Coincident Economic Index (left scale)
01:301:11
90:791:3
81:782:11
80:180:7
73:1175:3
69:1270:11
60:461:2
Peak:Trough:
07:12
Note: Shaded areas represent recessions as determined by the NBER Business Cycle Dating Committee.
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Producing Global Indicators
Monthly releases for each country follow pre-announced release schedules
Data revisions incorporated only for last six months of data
Annual benchmark revisions bring history of indexes up to date with revisions in the history of indicator series
Occasional comprehensive revisions
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Data Needs and Timeliness Issues
Historical data required for construction
Monthly, seasonally adjusted and deflated
Timely data required for real time monitoring
Dealing with publication lags
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Statistical Imputations, “Real Time”
New procedure uses available data more efficiently
Combines forecasts and actual observations
U.S. LEI released at least two weeks earlier
Procedure makes monthly indexes possible outside U.S
Euro Area LEI schedule can be made similar to the U.S.
LEI schedule
But, not possible elsewhere due to lack of high frequency
data
Dealing with publication lags
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New procedure uses available data more efficiently
January
(t-2)
February
(t-1)
Average Weekly Hours, Mfg. Yes YesInitial Claims, Unemp. Insurance (Inverted) Yes YesManufacturers' new orders, consumer goods & materials*
Yes No
Suppliers’ Deliveries Index Yes YesManufacturers' new orders, nondefense capital goods* Yes NoBuilding Permits, Private Housing Yes YesStock Prices, 500 Common Stocks Yes YesMoney Supply, M2 in 2000 Dollars* Yes NoInterest rate spread Yes Yes
Index of Consumer Expectations Yes Yes
Old March release:
New March release:
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How Does the New Procedure Work?
LEI adds forecast value
But, historical versus real time differences are small and random for similar forecast periods
Timelier procedure improves forecast ability in out-of-sample tests
Compared to an autoregressive benchmark: Out-of-sample forecast improvement of up to 12 % with the
more timely U.S. LEI (McGuckin, Ozyildirim, and Zarnowitz, 2007)
Up to 8 % out-of-sample forecast improvement with the more timely Euro Area LEI (Ozyildirim, Schaitkin, and Zarnowitz, 2009)
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Decline in global Leading Economic Indexes begin to moderate, but prospects on timing of recovery differ
Source: The Conference Board
-60
-50
-40
-30
-20
-10
0
10
20
06 07 08 09
The Conference Board Leading Economic Index™ (LEI) for Mexico (Feb '09)The Conference Board Leading Economic Index™ (LEI) for Euro AreaThe Conference Board Leading Economic Index™ (LEI) for JapanThe Conference Board Experimental Leading Economic Index™ (LEI) for ChinaThe Conference Board Leading Economic Index™ (LEI) for South Korea (Feb '09)
Mar '09
6-month percent change (annual rate)
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APPENDIX
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ECONOMISTS’ VIEW OF TIMELINESS
Real time data, forecasting, and policy making
Data revisions: news vs. noise
Testing predictive ability: model selection and inference in the presence of revisions in data
…
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Note: Shaded areas represent recessions as determined by the NBER Business Cycle Dating Committee.
U.S.: Leading Economic Index Vs. Real GDP (1959 – Present))
12,000
10,000
8,000
6,000
4,000
2,000
120
100
80
60
40
20
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
US Leading Economic Index (right scale)GDP* (left scale)
Peak:Trough:
60:261:1
69:470:4
73:475:1
80:180:3
81:382:4
90:391:1
01:101:4
07:4
