[{"data":1,"prerenderedAt":-1},["ShallowReactive",2],{"doc-seo-325747-105":3,"detail-sidebar-cat-0-en-105":81,"doc-detail-325747-en":130},{"code":4,"msg":5,"data":6},0,"ok",{"site_id":7,"language":8,"slug":9,"title":10,"keywords":11,"description":12,"schema_data":13,"social_meta":74,"head_meta":76,"extra_data":78,"updated_unix":80},105,"en","forecasting-turning-points-with-leading-indicators","Forecasting Turning Points With Leading Indicators","","U.S. economic activity is often assessed through leading indicators, especially the Composite Index of Leading Indicators (ILI), which media treat as evidence of impending growth or contraction. The commentary analyzes how the ILI is composed and what it is meant to forecast, then evaluates its historical performance as a tool for predicting business peaks and troughs. Findings show the ILI is informative but not foolproof, with notable limitations including false peak signals and insufficient lead for some turning points.",{"@graph":14,"@context":73},[15,34,56],{"@type":16,"itemListElement":17},"BreadcrumbList",[18,23,27,31],{"item":19,"name":20,"@type":21,"position":22},"https://docshare.wps.com","Home","ListItem",1,{"item":24,"name":25,"@type":21,"position":26},"https://docshare.wps.com/document/","Document",2,{"item":28,"name":29,"@type":21,"position":30},"https://docshare.wps.com/document/research-report/","Research & 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for?","Question",{"text":63,"@type":64},"It is commonly used to help forecast changes in economic activity by signaling potential business peaks or troughs.","Answer",{"name":66,"@type":61,"acceptedAnswer":67},"How did the ILI come into use historically?",{"text":68,"@type":64},"Notable early use began in 1937 when the Treasury asked the NBER to identify economic series for timing the end of the 1937–38 recession, and later the BEA published leading indicators in its Business Conditions Digest.",{"name":70,"@type":61,"acceptedAnswer":71},"What are the main limits of the ILI as a forecasting tool?",{"text":72,"@type":64},"The commentary reports false peak signals under certain decline-length rules and argues the ILI does not reliably signal the approach of a business peak, making it far from foolproof even though it can add useful information when combined with other 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\nU.S.economy is headed for recession inthe near future.Some have concludedthat recession is on the horizon,or hasalready begun.One piece of evidenceoffered to support that view is the Com-posite Index of Leading Indicators(ILI),which reached a peak in January1989,and by mid-August was reportedto have fallen in four of the last fivemonths.  \nGenerally speaking,a major task ineconomic forecasting is to anticipateturning points in economic activity—points when a business expansion willreach its zenith,or peak,or when a busi-ness contraction will reach its nadir,ortrough.A reliable method for forecast-ing turning points has continued toelude forecasters,despite advances inmathematical and statistical techniques.  \nThe financial news media frequentlyrefer to \"leading\"indicators of eco-nomic activity as clues,if not predic-tors,of changes in activity.The mediacommonly report the magnitude of anincrease or decline in the ILI,which,they conclude,implies continuedgrowth or contraction in economic ac-tivity.Some reports also claim that theLI is the government's \"chief eco-nomic forecasting gauge.”  \nThis Economic Commentary discussesthe composition and ostensible purpose  \n# Forecasting Turning Points WithLeading Indicators\n\nof the ILI and examines its record as aforecasting tool.We conclude that,while the ILI can provide useful infor-mation to forecasters,it is by no meansa foolproof tool for forecasting peaks ortroughs in business activity.We alsoconclude that the ILI does not yet ap-pear to be signaling the approach of abusiness peak.  \n■ The ILI:A Historical PerspectiveEconomic data series that might behelpful in identifying changes in ag-gregate economic activity have beenstudied by researchers at the NationalBureau of Economic Research(NBER),a private,nonprofit economicresearch organization,since the 1930s.Of the hundreds of economic series ex-amined,some were found to precede orlead,others to coincide,and still othersto follow or lag turning points in thedirection of overall economic activity,as determined by the NBER.  \nThe first notable use of leading indica-tors occurred in 1937,when Secretaryof the Treasury Henry Morgenthauasked the NBER to compile a list of eco-nomic series that would best indicatewhen the 1937-38 recessionwould end.²  \nIn October 1961,the Bureau of Eco-nomic Analysis(BEA)of the U.S.De-partment of Commerce began to pub-lish leading,coincident,and laggingindicators in its then-new monthly pub-lication,Business Conditions Digest.  \nOctober 1,1989  \nThe financial news media frequentlypoint to the movement of the Com-posite Index of Leading Indicators(ILI)as proof of impending growthor contraction in economic activity.Acloser look indicates,however,thatwhile the ILI can provide a great dealof useful information,its value as aforecasting tool is limited.Its useful-ness increases when it is used in com-bination with other indexes.  \nFrom among the leading indicatorsoriginally selected by the NBER,theBEA selected the 12 best on the basis ofsix criteria:economic significance;statistical adequacy;timing at troughsand peaks of aggregate economic ac-tivity;conformity to past business ex-pansions and contractions;smoothness;and frequency and timeliness.The 12 in-dividual series were combined into acomposite index,which was first pub-lished in November 1968.  \nThe BEA has revised the list of compo-nents of the composite index from timeto time,as the usefulness of someseries waned,and new or improvedseries became available.The composi-tion of the ILI was last changed in Jan-uary 1989 and now includes ll series.³  \n■ The ILI as a Forecaster of  \nBusiness Peaks  \nThere have been eight business peakssince World War II.The ILI has peakedprior to each one by periods rangingfrom two to 20 months,making it apotentially good tool for forecastingbusiness peaks.However,closeranalysis reveals that the ILI has seriousshortcomings as a forecasting tool.  \nThe usefulness of the ILI as aforecast","cbCaijEcHez9CKPS","https://ap.wps.com/l/cbCaijEcHez9CKPS","pdf",1218700,"English","# Forecasting Turning Points With Leading Indicators\n## The ILI: A Historical Perspective\n## The ILI as a Forecaster of Business Peaks","[{\"question\":\"What is the Composite Index of Leading Indicators (ILI) used for?\",\"answer\":\"It is commonly used to help forecast changes in economic activity by signaling potential business peaks or troughs.\"},{\"question\":\"How did the ILI come into use historically?\",\"answer\":\"Notable early use began in 1937 when the Treasury asked the NBER to identify economic series for timing the end of the 1937–38 recession, and later the BEA published leading indicators in its Business Conditions Digest.\"},{\"question\":\"What are the main limits of the ILI as a forecasting tool?\",\"answer\":\"The commentary reports false peak signals under certain decline-length rules and argues the ILI does not reliably signal the approach of a business peak, making it far from foolproof even though it can add useful information when combined with other indicators.\"}]","Forecasting Turning Points With Leading Indicators | PDF",1789971312,13]