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Cyclical Indicators for the United States

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. Introduction.

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Cyclical Indicators for the United States

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  1. 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

  2. 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.

  3. 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

  4. 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

  5. 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”

  6. 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)

  7. Example of a Leading Indicator Source: Bureau of Labor Statistics

  8. 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

  9. 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

  10. 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

  11. 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.

  12. New Grouping in Housing Sector Source: BEA

  13. Imbalance in Financial Sector Source: Bureau of Economic Analysis and Standard & Poor’s

  14. 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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