Trump Recession Indicators

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Econbrowser US Recession Odds’s Probability of Recession Model ( James D. Hamilton is Professor of Economics at the University of California, San Diego and Menzie Chinn is Professor of Public Affairs and Economics at the University of Wisconsin, Madison) suggests that recession odds for a US recession in 2020 are high (graph below) US Recession Odds within 12 months

Conference Board Leading Economic Index

 The Conference Board Leading Economic Index® (LEI) for the U.S. declined 0.3 percent in December to 111.2 (2016 = 100), following a 0.1 percent increase in November, and a 0.2 percent decline in October.

“The US LEI declined slightly in December, driven by large negative contributions from rising unemployment insurance claims and a drop in housing permits,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board. “The LEI has now declined in four out of the last five months. Its six-month growth rate turned slightly more negative in the final quarter of 2019, with the manufacturing indicators pointing to continued weakness in the sector. However, financial conditions and consumers’ outlook for the economy remain positive, which should support growth of about 2 percent through early 2020.”

About The Conference Board Leading Economic Index® (LEI) for the U.S.

The composite economic indexes are the key elements in an analytic system designed to signal peaks and troughs in the business cycle. The leading, coincident, and lagging economic indexes are essentially composite averages of several individual leading, coincident, or lagging indicators. They are constructed to summarize and reveal common turning point patterns in economic data in a clearer and more convincing manner than any individual component – primarily because they smooth out some of the volatility of individual components.

The ten components of The Conference Board Leading Economic Index® for the U.S. include:

Average weekly hours, manufacturing

Average weekly initial claims for unemployment insurance

Manufacturers’ new orders, consumer goods and materials

ISM® Index of New Orders

Manufacturers’ new orders, nondefense capital goods excluding aircraft orders

Building permits, new private housing units

Stock prices, 500 common stocks

Leading Credit Index™

Interest rate spread, 10-year Treasury bonds less federal funds

Average consumer expectations for business conditions

ECRI Leading Index

ECRI WLI Growth and Future Inflation Gauge as of Jan 2020

ECRI  has a US-centric Leading Economic Index that has been in use for a longer time than Recession Alert’s index above. Unlike Recession Alert, the ECRI WLI (Weekly Leading Index) does not apply a probability of recession axis to their WLI, but the index does a good job in highlighting turning points present and future in the US economy, and as such, “periods of vulnerability.”

According to ECRI’s webiste, the ECRI WLI is ” designed to predict the timing of future changes in the economy’s direction. They signal those turns before the fact, and well before the consensus. ECRI’s focus is on identifying when those changes in direction will occur (see chart).

According to the mainstream view, recessions are caused by shocks propagating through the economy. In contrast, our framework, based on many decades of research, finds that endogenous cyclical forces periodically open up windows of cyclical vulnerability that make it much easier for exogenous shocks to precipitate recessions. In the absence of cyclical weakness, such shocks are not recessionary. Because our leading indexes monitor when the economy becomes susceptible to shocks, they effectively anticipate recessions.”

Global Composite Leading Economic Indicators

OECD Composite Leading Indicator

OECD composite leading indicator (CLI) is designed to provide early signals of turning points in business cycles showing fluctuation of the economic activity around its long term potential level. CLIs show short-term economic movements in qualitative rather than quantitative terms.

October 2019 – Composite leading indicators (CLIs), designed to anticipate turning points in economic activity relative to trend six to nine months ahead, continue to point to easing growth momentum in the OECD area as a whole, and major economies such as the United States.  

Easing growth momentum remains the assessment for the United Kingdom, Canada and the euro area as a whole, including Germany, France and Italy, with similar signs now also emerging in the United States

OECD (2020), Composite leading indicator (CLI) (indicator). doi: 10.1787/4a174487-en (Accessed on 27 January 2020)