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Misleading indicators? Using the composite leading indicators to predict cyclical turning points

Author

Listed:
  • Kenneth M. Emery
  • Evan F. Koenig

Abstract

The U.S. Department of Commerce composite index of leading indicators (CLI) is a widely cited and influential economic series. In this article, Evan F. Koenig and Kenneth M. Emery examine how well movements in the CLI predict business-cycle turning points. Using data that actually would have been available to a forecaster, Koenig and Emery find that the CLI has provided no reliable advance warning of recessions and expansions. Further, in interpreting movements in the CLI, simple rules of thumb have often performed as well as more sophisticated forecasting methodologies. ; While the evidence in this article indicates that the CLI may provide little or no advance warning of business-cycle turning points, the authors emphasize that the CLI may still give the earliest available indication of a change in the economy's direction.

Suggested Citation

  • Kenneth M. Emery & Evan F. Koenig, 1991. "Misleading indicators? Using the composite leading indicators to predict cyclical turning points," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Jul, pages 1-14.
    • Handle: RePEc:fip:fedder:y:1991:i:jul:p:1-14
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    Citations

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    Cited by:

    1. Evan F. Koenig & Kenneth M. Emery, 1994. "Why The Composite Index Of Leading Indicators Does Not Lead," Contemporary Economic Policy, Western Economic Association International, vol. 12(1), pages 52-66, January.
    2. Adriana Fernandez & Alex Nikolsko-Rzhevskyy, 2011. "Forecasting the end of the global recession: did we miss the early signs?," Staff Papers, Federal Reserve Bank of Dallas, issue Apr.
    3. Tazwell S. Rowe & Roy H. Webb, 1995. "An index of leading indicators for inflation," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 75-96.
    4. Roy Batchelor & Pami Dua, 1997. "Consumer Confidence And The Probability Of Recession: A Markov Switching Model," Working papers 47, Centre for Development Economics, Delhi School of Economics.
    5. Layton, Allan P., 1996. "Dating and predicting phase changes in the U.S. business cycle," International Journal of Forecasting, Elsevier, vol. 12(3), pages 417-428, September.
    6. Franklin D. Berger & Keith R. Phillips, 1994. "The disappearing January blip and other state employment mysteries," Working Papers 9403, Federal Reserve Bank of Dallas.
    7. Chan Guk Huh, 1991. "Recession probability indexes: a survey," Economic Review, Federal Reserve Bank of San Francisco, issue Fall, pages 31-40.
    8. Sergey Smirnov, 2011. "Those Unpredictable Recessions," HSE Working papers WP BRP 02/EC/2011, National Research University Higher School of Economics.

    More about this item

    Keywords

    Economic indicators; Business cycles;

    Statistics

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