Edward Renshaw
Professor of Economics
State University of New York at Albany
Economic recessions have been studied and analyzed for more than a century. Economists, however, have not had much success at identifying recessionary peaks in business activity in close proximity to their occurrence. This in turn has made it difficult for decision makers to implement measures that might prevent or at least moderate some of the damage that is caused by recessions.
In this essay we will review the forecasting record and highlight the turbulent nature of the US economy in the vicinity of recessionary peaks in economic activity. We briefly examine some formulas for predicting the duration of business expansions and then feature a collection of cyclical indicator thresholds with long histories of being able to identify following years without a recessionary peak in business activity. The "good year" approach to recession forecasting complements other approaches, such as the leading economic indicator approach, by enabling one to do a better job identifying indications of a possible recession that are likely to be false or have very long lead times.
At the end of 1996 at least five of the good year indicators examined in this essay were pointing in the direction of no recession in 1997.
While much labor has gone into the development of models and indicators that might warn decision makers of an impending recession, the success of these efforts has been disappointing. McNees (in Lahiri and Moore 1991, chapter 9) has noted that before the two most prolonged recessions in the Post World War II period (the recessions of 1973-75 and 1981-82) forecasters were not able to identify the peak until "about the time that it was occurring".
Robert Eggert has been summarizing the economic forecasts of a noted panel of economists on a monthly basis since 1976. In July 1979 his Blue Chip Economic Indicators newsletter proclaimed, "PANEL SAYS RECESSION IS HERE--WITH NO UPTURN UNTIL SECOND-HALF 1980". While the panel was right about an upturn occurring in the second half of 1980, the business cycle dating committee of the National Bureau of Economic Research (NBER) finally decided that the actual peak in business activity didn't occur until January 1980 or six months after a majority of the economists surveyed by Eggert thought it was upon us.
The headline for the July 1981 issue of the Blue Chip news letter was "ECONOMIC EXUBERANCE ENVISIONED FOR 1982". It wasn't until November--four months after the NBER peak in business activity, that a majority of the Blue Chip panelists believed that another recession had started. "However, a big majority of the 39 who said we were in a recession agreed with President Reagan that it would be mild. Most thought it would be over by the end of the first quarter of 1982." The actual trough did not occur until November 1982.
In April 1985 forecasters were queried as to how long the on going recovery in business activity would last. The average response was that the business expansion would last 49 months, which put the next peak in business activity at December 1986, more than 3 and one-half years before the actual occurrence of another recession.
In the July 10, 1990 issue of Blue Chip Economic Indicators it was reported that, "The year-ago CONSENSUS forecast for 1990 of a "soft landing" (no recession, but sluggish growth) remains intact. The economy in 1991 is projected to be a shade better, but the prognosis is still largely 'more of the same'." This was the month following the end of the longest peace time expansion of the US economy ever.
One reason economists have not been very successful at identifying economic recessions before they occurred is the wide variation in the duration of business expansions. In the post World War II period business expansions have ranged in duration from only 12 months for the abortive recovery from the short lived recession of 1980 to 106 months for the 1961- 69 expansion which may have been prolonged by the Vietnam War. See Table 13.1.
The most encouraging thing about the data in this table is that recent business expansions do seem to be longer, on the average, than was formerly the case. The eight business expansions from October 1949 to July 1990 have an average duration of 51.5 months. This can be compared to an average duration of 29.3 months for the 23 expansions which occurred from December 1854 to November 1948. If economic recessions are expected to occur less frequently than was formerly the case, that should discourage some economists from "sticking their neck out" and trying to predict or identify them before they occur.
Another good reason for not getting involved in predicting the end of business expansions is the turbulent behavior of real GDP growth rates in the vicinity of business peaks. Since the accord between the US Treasury and the Federal Reserve in 1951, which freed the Fed from the responsibility of stabilizing government borrowing rates, there have always been at least two below average growth rates for real GDP in the four quarters preceding recessionary peaks (Table 21.1). During seven of the nine recessionary peaks in column (5) of this table, however, the growth rates for real GDP were higher than in the preceding quarter. Business expansions, it would seem, often sputter to an unpredictable end.
The problem of turbulence is not limited to real GDP and its components. All of the indicators that have been developed to identify cyclical turning points and provide advanced warning of a possible recession also suffer from chaotic behavior that can inspire false predictions about what will happen to the economy in the future (Table 14.1).
One of the first lessons to be learned from the coincident indicators that are examined in the process of dating business peaks is that they seldom agree on the exact timing of the peak. In deciding when a recession has occurred the dating committee of the National Bureau of Economic Research usually gives a lot of weight to the behavior of personal income expressed in constant dollars. This indicator, however, has been replaced with personal income less transfer payments in the composite index of four coincident indicators (which has now been handed over to the Conference Board) since the exclusion of transfer payments allows the coincident index to do a better job of identifying recessionary troughs.
In Table 21.2 we show the recessionary lead times for both measures of personal income and the other three components of the composite index of coincident economic indicators: the Federal Reserve's index of industrial production; the Labor Department's index of employees on nonagricultural payrolls; and estimates of manufacturing and trade sales expressed in 1987 dollars which are compiled by the Bureau of Economic Analysis from data collected each month by the Bureau of Census. One of the most interesting points to note in connection with this table is that the individual peaks or lead times for the five coincident indicators have varied from six to 13 months.
There is an old Reader's Digest type of saying that if you laid all economists end to end, "they would still point in every direction." Since some observers are attracted to different indicators it is easy to understand why there can be a lot of disagreement among economists as to whether or when the economy became bogged down in a recession. The good thing about the "diversity" of opinion as to when a recession began is that it might give the Board of Governors of the Federal Reserve, managers of business enterprises and consumers who watch the behavior of cyclical indicators more time to make adjustments that might help to prolong a business expansion or at least moderate those recessions that do occur.
The more frustrating aspect to the diversity of behavior of the coincident indicators in the vicinity of business peaks is that it sometimes makes it very difficult to identify the peak until long after its occurrence. None of the coincident indicators in Table 21.2 have consistently declined in the first month after an NBER peak. There have been two delayed increases or "rebounds" for each of the five coincident indicators in the first month after the last nine peaks in business activity identified by NBER.
The usefulness of leading and coincident indicators in helping to identify business peaks before or shortly after their occurrence has also been tarnished in recent years by numerous dips in the indicators that did not trigger a near term recession (Essay 14).
When the goal is prevention, or damage control, one really needs some better ways to identify recessions in close proximity to their occurrence. One of the more useful ways to identify some false, or very premature signals, with regard to an impending recession is to pay close attention to the behavior of short term interest rates. In the post 1947 period the US economy has never experienced a recessionary peak in business activity until at least eight months after a seventy percent increase in the average discount rate on new issues of 91 day Treasury bills. See Table 21.3.
Investment decisions, however, are probably more constrained by changes in the prime rate charged by banks than by changes in the T-bill rate. Since 1947 the US economy has never experienced an official NBER type of recession until at least three months after the average prime rate charged by banks increased by a third or more from its cyclical low.
Once the prime rate has increased by this percentage recession watchers should carefully monitor changes in leading economic indicators and other variables that might be seriously impacted by higher interest rates.
In the post 1947 period the US economy has never experienced a recession until at least one month after a cumulative decline of 20 percent or more for both the index of new private housing units authorized by local building permits and the number of new private housing units actually started.
Residential building permits is the only component of the Conference Board's composite index of leading economic indicators that has consistently declined a lot before each of the last nine business peaks.
Another variable that recession watchers should keep a close eye on is the 12 month inflation rate for the all item consumer price index. Since 1945 the US economy has (so far) never experienced a recessionary peak in economic activity until this measure of the inflation rate has accelerated by at least 1.1 percentage points from its cyclical low.
In the same period of time the US economy has (so far) never experienced a recessionary peak in economic activity until all six of the cyclical indicators in Table 21.3 have exceeded the thresholds enumerated in the footnotes to this table. The good news to be gleaned from these thresholds is that two of the six indicators (residential building permits and the CPI inflation rate) had failed to signal a future recession as of January 1997.
Most econometric models of the US economy give too much weight to lagged dependent variables that do not possess leading indicator properties and cannot be relied upon to always provide some advanced warning with regard to a possible recession.
Columbia University's Center for International Business Cycle Research (CIBCR), however, has found that the duration of post World War II expansions in economic activity has been about equal to 15 months plus 1.57 times the monthly lag for the prime rate after business troughs. If decision makers had known about this formula at the time the prime rate bottomed out and began to increase, they would have had from eleven to about fifty months to prepare for the next recession. If the CIBCR formula continues to do a good job of tracking the economy the current business expansion should be the third longest in the post World War II period and won't be expected to end until about January 1977.
The good news to be obtained from Table 21.3 is that the CIBCR formula may also underestimate the duration of the business expansion which began in April 1991. In the post World War II period the duration of business expansions has been about equal to 1.5 times the indicator "spread" obtained by subtracting the longest lead time for any of the six indicators in this table from the shortest lead time for any of the indicators during each expansion.
If the housing market doesn't fall apart, and if the 12 month CPI inflation rate remains under 3.4 percent, the six indicator "spread" for the current business expansion will begin to set some new records before 1996 is over and be close to predicting the most prolonged expansion of economic activity in the US in business cycle history.
One would hope that this model will outperform predictions that are tied more closely to the behavior of the prime rate and that there won't be another recession in this century. Given the large disparities in the predictions of cyclical indicator models for the current business expansion, however, it makes sense to consider other ways of trying to identify recessionary peaks in business activity in close proximity to their occurrence.
In Table 21.5 interest rates and some inflation indicators are used to identify years which have (so far) never been followed, at least in the post 1948 period, by a year containing a recessionary peak in economic activity.
Since the beginning of World War II there has never been a peak in economic activity after any year when the Fed allowed the yield on new issues of 3-month Treasury bills in Table 17.4 to decline by six percent or more.
During the same time period there has never been a business peak until at least 23 months after any year with an annual decline in both the Dec.- Dec. inflation rate for the all item CPI and the last offering yield in December for new issues of 91 day Treasury bills. If this relationship continues to hold there won't be another recessionary peak in business activity until at least November of 1997.
Fed watchers should also keep a close eye on the prime rate charged by banks. Dec.-Dec. declines in this rate have (so far) always been followed by good years for the U.S. economy. This indicator would suggest that there won't be another recession until at least 1998.
In recent years economists have begun to appreciate that yield spreads may be of some value in helping to identity recessions before they occur (Table 3.5). Since 1945 there has never been a recessionary peak in economic activity after any year when Moody's estimate of the December yield on ten year Treasury bonds was 1.30 percentage points or more higher than its estimate of the last offering yield on new issues of Treasury bills. The cases satisfying interest rate thresholds are captioned in Table 21.5 with the symbols: TB, TP, PR and SP.
The capacity utilization rate in manufacturing is one of the Fed's most scrutinized inflation indicators (Table 12.5). Since 1947 there has never been a recessionary peak in business activity after any year when the capacity utilization rate was under 80 percent during the year as a whole or for December.
Since 1923 the US economy has never experienced a recessionary peak after any year when the Dec.-Dec. growth rate for M2 or Friedman and Schwartz's M4 accelerated by 1.1 percentage points or more on a Dec.-Dec. basis. To the extent that individuals are saving for a near term purpose, such as the purchase of a new automobile, and the Fed is not overly concerned about the possibility of accelerating inflation, this sort of saving behavior should help to bolster the economy in the following year.
M2, which includes general purpose money market mutual fund balances and small denomination time deposits as well as all of the components of M1, has been a part of the Conference Board's composite index of leading economic indicators since 1979. From 1988-94 the M2 growth rate sagged from 5.8 to only .4 percent as many investors shifted more of their savings to stock and bond funds. During 1995, however, the M2 growth rate recovered to 4.2 percent and is estimated to have increased to 4.6 in 1996.
LC in Table 21.5 identifies years when the Conference Board's index of labor cost per unit of output in manufacturing (1987=100) declined by .8 percent or more on a Dec.-Dec. basis. In this type of low inflation environment the Fed is not likely to tighten credit to the point of tipping the economy into a near term recession.
Food has always been a major component of the cost of living. Since the index of the prices received by farmers for crops was first estimated for 1910 the US has never experienced a recessionary peak in business activity following any year when this index declined by more than four percent on a year-year basis.
FP in Table 21.5 identifies years when the fuel segment of the crude materials for further processing component of the producer price index declined on a year-to-year basis and G identifies years when the year end price for Englehard industrial gold bullion declined by three percent or more (Essay 12). None of these years have (so far) been followed by a peak in business activity.
The ten interest rate and inflation related indicators in Table 21.5 can identify all but four of the years since 1947 that were not followed by a recessionary peak in business activity (1966, 1969, 1973 and 1978).
All of these and numerous other years without a business peak can be identified on the basis of annual or June-Dec. declines in the S&P composite stock price index amounting to one percent or more. The stock market has performed much better on the average in the following year, however, when two or more of the eleven indicators in Table 21.5 were pointing in the direction of a good year for the US economy than if only one or none of the indicators were pointing in that direction.
The S&P composite stock price index has long been a component of the index of leading economic indicators that was pioneered by the National Bureau of Economic Research in the 1920s and 30s, turned over to the U.S. Commerce Department in the 1960s and passed on to the Conference Board in 1995.
It is not so well appreciated, however, that this index is a much better predictor of economic recoveries than years containing a recessionary peak in business activity (Table 14.6). In Table 21.6 we will use the S&P index in conjunction with other variables to help identify years without a recessionary peak in business activity.
The "good year" approach to economic and financial forecasting can be very helpful at enabling one to detect false or highly premature indications of an impending recession in the Conference Board's index of leading economic indicators. It can also be used to help identify some of the best years to have invested in the stock market. Since the mild recession of 1960-61 the S&P index has lost more of its value after a peak in business activity than before the peak (Table 14.5).
At least five of the eleven "good Year" indicators captioned in Table 21.6 (S&P, MS, WFR, SU and RV) are associated with stock market crashes and corrections. From 1920-95 there were 30 years when the S&P index declined by one percent or more on a Dec.-Dec. or June-Dec. basis and none of these years were followed by a recessionary peak in business activity. If the US economy was not in the midst of a recession during these years, it was usually experiencing a "correction" in the midst of prosperity. Stock market corrections in the midst of prosperity can have a sobering effect on consumer and business expectations which in turn might help to prevent speculative excesses and prolong business expansions.
The outlook for the economy in the following year has also been favorable if the average value for the S&P index for December was down somewhat from its previous average monthly cyclical high and the Fed was trying to promote economic expansion by allowing the December-December growth rate for the conventional money supply, M1, to accelerate. See those x mark the spot years captioned with the symbol "MS" in Table 21.6.
There have been six years since 1925 (1960, 1971, 1978, 1984, 1987 and 1994) when the financial return associated with the S&P index was positive but not large enough to equal the average yield on new issues of Treasury bills. All of these years of weak financial returns "WFR" were followed by years with double digit returns and sustained expansions in economic activity.
Good years for the US economy have also followed years when the average monthly value for the S&P index in December was down at least 1.7 percent or more from its preceding average monthly cyclical high and the November-November percentage change in initial unemployment claims was negative. Why this signal works so well is a mystery. The "SU" cases would suggest, however, that consumers are not likely to panic or sharply curtail their consumption after a stock market correction if the labor market is healthy.
When the absolute value of the current year's financial return for the S&P index is subtracted from the annual high-low ratio, expressed as a percentage point range, one is left with an intriguing measure of stock market volatility that would have been especially helpful at enabling an investor to take advantage of major declines in stock prices. When the "RV" measure of "residual volatility" has exceeded 16 percentage points, the financial returns for the S&P index in the following two years have always been positive since the beginning of World War II and the US economy has not slipped into another recession for at least one full year.
The best years to have owned common stock have been years containing a recessionary trough in economic activity. If one could have correctly forecasted all those years containing a trough in business activity since 1929, and had invested in a portfolio similar to the S&P index at the beginning of the year, the average financial return would have been a sparkling 31.6 percent versus a more risky average return of less than ten percent for the first year after a recessionary trough year (Table 3.2).
In the post World War II period economic recessions have been of such short duration that by the time a majority of forecasters are convinced that the economy is in a recession, it is probably time to begin looking for bargains in the stock market. At this point in the business cycle you don't need leading indicators to identify good years to have invested in this market. Noteworthy declines in coincident indicators will also be of some forecasting value.
The short duration of stock market crashes and corrections has created an environment where bad years for stock brokers (as evidenced by declines in the volume of shares traded on the New York Stock Exchange of ten percent or more) have consistently been followed by good years for both the stock market and the US economy.
Year-to-year declines in Federal Reserve profits are a reflection of an easy monetary policy and have so far always been followed by a year without a business peak.
Year-to-year declines in the earnings associated with the S&P index amounting to six percent or more and a slow down in the growth of dividends associated with this index amounting to 2.5 percentage points or more will also be of value in helping to identify good following years to have been in the market--since bull markets and business expansions do have a propensity to last more than one year.
The prospect for a sustained increase in economic activity is also improved if the financial return for the S&P index was positive, the Dec.- Dec. yield on new issues of 3-month Treasury bills was down and the Dec.- Dec. inflation rate for the all item CPI was also down. See those cases caption with the Symbol "STP" in Table 21.6.
There are some economists who believe that consumption is a function not only of current income but may also depend on wealth which was acquired in previous years (Essay 1). Since the stock market crash of 1929 there has (so far) never been a recessionary peak in business activity after any year when the financial return for the S&P index accelerated by 16 percentage points or more. Nor has there been a business peak after any year when the financial return for this index was equal to 34 percent or more.
At the end of 1995 both of these indicator signals, which are captioned with the notations "FRU" and "BFR" in Table 21.6, were supporting the conclusion that the Conference Board's index of leading indicators (which had declined by almost two percent during 1995) was overly pessimistic and that there wouldn't be another recession during 1996. The "STP" indicator was also pointing in the direction of a recessionless year for 1996.
One of the problems with the econometric approach to forecasting is that it encourages analysts to throw valuable information away in an effort to avoid the chaos that can be created in a multiple regression containing many independent variables that are highly correlated with each other.
This is unfortunate since one can probably place more confidence in the good year approach if there are numerous indicators pointing in the direction of a following year without a peak in economic activity than if there are none or only a few pointing in the direction of a sustained expansion of the US economy.
In Table 21.7 and its footnotes we list some additional indicators and their thresholds that have the property of being rather "duplicative" of the results obtained in Tables 21.5 and 21.6.
When there are no indicators pointing in the direction of sustained expansion, the expectation is that the US economy will probably experience a recessionary peak in business activity in fairly close proximity to July of the following year.
This, of course, is something that should be confirmed by paying close attention to composite indexes of leading economic indicators and the more recession prone components of real GDP with leading indicator properties that were discussed in Essay 14. The nice thing about the "good year" approach is that it is complementary to other types of recession forecasting and may help to compensate for both premature and delayed indications of a possible recession
While the emphasis in this essay has been on the good year approach it should appreciated that there is a "bad" or poor growth year approach to recession forecasting which was developed and summarized in The Practical Forecasters' Almanac Table 1.91 and can be used as a back-up to other approaches.
The objective of the poor growth year approach was to identify years containing a recessionary peak in business activity that were likely to be followed by growth rates for real GDP that were either negative or close to zero. An accurate identification of these cases can be used to improve the results of other types of forecasting systems employing technologies, such as regression analysis, which are biased in the direction of median type forecasts (Essay 11).
This bias can be partially eliminated by including dummy variables in the regression to represent poor growth years or by using the bias associated with preceding poor growth years to adjust future forecasts for the bias anticipated during poor growth years.
The nice thing about the poor growth year approach is that it has been subject to some out of sample testing. It predicted the 1991 decline in real GDP with flying colors.
While a few of the components of the poor growth year approach were signaling a possible recession at the end of 1995, the overall signaling system held up rather well. Table 11.3 in this handbook was modified to both illustrate the poor growth year approach and repair one of the elements that was damaged by the last false signal associated with the composite index of leading economic indicators that was handed over to the Conference Board.
The other poor growth indicators are updated and summarized in Tables 21.8, 21.9, 21.10 and 21.11 and their accompanied footnotes. The data in these tables would strongly suggest that there are no perfect indicators of poor growth years. Summary Table 21.11, however, does provide a wonderful illustration of the forecasting benefits to be expected in connection with a strong consensus on the part of individual indicators that usually do a good job of identifying poor growth years.
It should be emphasized that models, indexes and forecasting systems which would have worked well in the past do have a tendency to break down and may not explain the future very well. The nice thing about the forecasting systems considered in this essay, however, is that they are all simple enough to be up-dated by students and persons with money at risk who are not afraid of cyclical indicators and might be damaged by another recession.
Lahiri, Kajal and Geoffrey Moore (1991). Leading Economic Indicators(New York: Cambridge University Press).
Renshaw, Edward (1990). The Practical Forecasters' Almanac(Burr Ridge, Illinois: Irwin Professional Publishing).
Peak Date Seasonally Adjusted Quarterly Growth Rates
----------------------------------------------------
Peak-4 Peak-3 Peak-2 Peak-1 Peak Peak+1 Peak+2
(1) (2) (3) (4) (5) (6) (7)
1948-4 4.7 4.7 3.7 2.5* 3.9 -3.3 -1.0
1953-2 1.1* 2.5* 9.1 7.3 1.9* -1.7 -3.9
1957-3 .8* 5.5 2.2* -.4* 3.6 -4.4 -8.5
1960-1 5.2 7.0 -1.4* .0* 10.8 -2.6 -.5
1969-3 3.0 1.8* 6.2 1.0* 2.3* -2.2 -.9
1973-4 7.0 11.0 2.8* -1.1* 4.5 -3.3 1.8
1980-1 .5* .9* 2.6* 1.1* 2.0* -9.2 -.3
1981-3 -.3* 8.3 8.0 -3.3* 4.9 -4.9 -6.6
1990-2 3.0 2.2* .4* 4.1 1.3* -1.9 -4.1
Number of Below Average Growth Rates for Real GDP
4 4 5 7 4 9 9
*Identifies growth rates for real GDP during the four preceding quarters and at the peak quarter that were below the 2.9 percent longer run average growth rate for real GDP from 1929-94. Since the accord between the US Treasury and the Federal Reserve in 1951, which freed the Fed from the responsibility of stabilizing government borrowing rates, there has always been at least two below average growth rates in the four quarters preceding the recessionary peaks in economic activity in column (5). Business expansions often sputter to an unpredictable end. During seven of the nine recessionary peaks in column (5) the growth rates for real GDP were higher than in the preceding quarter.
Source of basic data: The Survey of Current Business, Table 8.1.
Lead Time In Months From NBER Peak
------------------------------------- Median Range of
NBER P. I. P. I. Ind. Pay. Mfg. Lead Time Lead
Peak less Prod. Emp. Trade for (52, Times in
Months Trans. Sales 51 & 47) Months
(52) (51) (47) (41) (57)
Nov. 1948 - 1 - 1 - 4 - 2 + 1 - 1 6
July 1953 + 3 - 1 0 - 1 - 3 0 7
Aug. 1957 0 0 - 5 - 5 - 6 0 7
Apr. 1960 + 2 + 1 - 3 0 - 3 + 1 6
Dec. 1969 + 4 + 8 - 2 + 3 - 2 + 4 11
Nov. 1973 0 0 0 +11 0 0 12
Jan. 1980 0 0 + 2 + 2 -10 0 13
July 1981 + 1 + 1 0 0 - 6 0 8
July 1990 - 3 - 3 + 2 - 1 - 4 - 3 7
Mean Absolute Lead Time Error in Months
------------------------------------------------
1.6 1.7 2.0 2.8 3.9 1.0
Source of basic data: Survey of Current Business, October and November 1994.
Peak Month 48-11 53-07 57-08 60-04 69-12 73-11 80-01 81-07 90-07
Prime Rate -3 -20 -11 -7 -39* -7 -19 -8 -22
T-bill Rate -15 -19 -32 -20 -60* -8 -16 -8 -16
Res. Build. -2 -34 -23 -6 -44 -7 -12 -4 -71*
12 M. CPI -28 -41 -22 -6 -54 -8 -35 0 -79*
Hous. Start. -1 -33 -21 -1 -83* -2 -12 -2 -74
Mfg. N. Ord. -4 -34 -37 -19 -101* -31 -52 -6 -76
Spread 27 22 26 19 62 29 40 8 63
Pred. Dur. 40 33 39 28 93 44 60 12 94
Act. Dur. 37 45** 39 24 106** 36 58 12 92
Actual Minus the Predicted Duration of these Business
Expansions in Months
-3 12** 0 -4 13** -8 -2 0 -2
Notes for Table 21.3
The lead times for the average prime rate charged by banks are based on the first month in each business expansion that this rate experienced a cumulative increase of a third or more from its preceding cyclical low.
The lead times for the average discount rate on new issues of 91-day Treasury bills are based on the first month in each business expansion that this rate experienced a cumulative increase of 70 percent or more from its preceding cyclical low.
The lead times for new private housing units authorized by local building permits are based on the first month in each business expansion that residential building permits experienced a cumulative decline of 20 percent or more from their preceding expansionary high.
The lead times for the 12 month all item CPI inflation rate are based on the first month in each business expansion that this inflation rate experienced a cumulative increase of 1.1 percentage points or more from its preceding cyclical low.
The lead times for new private housing units started are based on the first month in each business expansion that housing starts experienced a cumulative decline of more than 20 percent from their preceding expansionary high.
The lead times for manufacturers' new orders in 1987 dollars from consumer goods and materials industries are based on the first month in each business expansion that new orders experienced a cumulative decline of 1.5 percent or more from their preceding expansionary high.
Spread is obtained by subtracting the longest lead time from the shortest lead time for each business expansion.
The predicted duration of the business expansion is equal to 1.5 times the spread obtained by subtracting the longest lead time from the shortest lead time for each business expansion.
So far there has never been a recessionary peak in business activity until after all six of these thresholds have been equaled or exceeded. As of August 1996, residential building permits and the CPI inflation rate had failed to signal another recession.
*Identifies the longest lead time for each series.
**Business expansions that may have been prolonged by major wars. By including a dummy variable in a multiple regression for these two expansions one can reduce the standard error for this forecasting system to a smaller value than for either the CIBCR model in Table 5.1 or the prime rate acceleration model in Table 21.4.
Source of basic Data: the cyclical indicator section of The Survey of Current Business, October 1995 and January/February 1996.
Remaining Duration of
Date of Business Expansion
----------------------- --------------------- Actual Minus
Prime Rate Prime Rate Predicted Actual Predicted
Trough Up 1 Third ------in Months------ Duration
(1) (2) (3)n (4) (5)n
Nov. 1947 Aug. 1948 9 3 - 6
Aug. 1950 Nov. 1951 15 20 5*
July 1955 Sep. 1956 14 11 - 3
Aug. 1958 Sep. 1959 13 7 - 6
Nov. 1965 Dec. 1967 25 24 - 1
Mar. 1972 Apr. 1973 13 7 - 6
Apr. 1977 June 1978 14 19 5
Aug. 1980 Nov. 1980 3 8 5
Mar. 1987 Sep. 1988 18 22 4
Feb. 1994 Nov. 1994 9 ? ?
This table provides a wonderful illustration of a formula with a very good track record for predicting the duration of business expansions in the past that has "broken down" during the current expansion. It supports the conclusion that forecasters should examine more than one indicator when trying to identify business peaks in close proximity to their occurrence.
(3)n. The remaining duration of the business expansion is predicted to equal the number of months required for the prime rate to solidly increase by one-third from its own trough date in column (1) to the up-date month in column (2).
(5)n. Column (4) minus column (3).
*A business expansion that may have been prolonged by the Korean war.
Source of basic data: Business cycle indicator series 109 published in The Survey of Current Business.
Following Year
Year TB TP PR SP CU M LC CP FP G S&P S&P Return
1946 x x 5.5
1947---------------------------------------------------------- 5.4*
1948 x x 17.8
1949 x x x x x 30.5
1950 x x 23.4
1951 x 17.7*
1952---------------------------------------------------------- - 1.2*
1953 x x x x 51.2
1954 x x x x x x 31.0
1955 x x x 6.4
1956---------------------------------------------------------- -10.0*
1957 x x x 42.4
1958 x x x x x x 11.8
1959---------------------------------------------------------- .3*
1960 x x x x x x 26.6
1961 x x x x x - 8.8
1962 x x 22.5
1963 x 16.3*
1964 x x 12.3
1965 x -10.0*
1966 x 23.7*
1967 x x 10.8
1968---------------------------------------------------------- - 8.3*
1969 x 3.5*
1970 x x x x x x x 14.1
1971 x x x x x x 18.7
1972---------------------------------------------------------- -14.5*
1973 x -26.0*
1974 x x 36.9
1975 x x x x x x x x x 23.6
1976 x x x x x x x - 7.2
1977 x x x 6.4
1978 x 18.4*
1979---------------------------------------------------------- 31.5*
1980---------------------------------------------------------- - 4.8*
1981 x x x x x x x x 20.4
1982 x x x x x x 22.3
1983 x x x x x x x 6.0
1984 x x x x x 31.1
1985 x x x x x x x 18.5
1986 x x x x x x x x x x 5.7
1987 x x x x 16.3
1988 x x x 31.2
1989---------------------------------------------------------- - 3.1*
1990 x x x x x x x x 30.0
1991 x x x x x x x 7.4
1992 x x x x x x 9.9
1993 x x x 1.3
1994 x x x x 37.1
1995 x x x x 22.3
1996 x x ? x ?
Footnotes for Table 21.5
TB identifies years when the Dec.-Dec. yield on new issues of 3-month Treasury bills in Table 17.4 decreased by six percent or more.
TP identifies years when the Dec.-Dec. yield on new issues of 3-month Treasury bills in Table 17.4 decreased and the Dec.-Dec. inflation rate for the all item CPI in Table 19.1 also declined.
PR identifies years when the average Dec.-Dec. prime rate charged by banks declined.
SP identifies years when Moody's December estimate of the ten year Treasury bond yield was 1.30 percentage points or more higher than the last offering yield on new issues of 3-month Treasury bills. Data are from Moody's Municipal and Government Manual.
CU identifies years when the Fed's estimate of the capacity utilization rate in Manufacturing was under 80 percent during the year as a whole or for December.
M identifies years when the Dec.-Dec. growth rate for the Fed's M2 or Friedman and Schwartz's M4 was allowed to accelerate by 1.1 percentage points or more.
LC identifies years when Conference Board's index of labor cost per unit of output in manufacturing (1987=100) declined by .8 percent or more on a Dec.- Dec. basis.
CP identifies years when the USDA's index of prices received by farmers for crops declined by four percent or more on a year-to-year basis.
FP identifies years when the fuel segment of the crude materials for further processing component of the producer price index declined on a year-to-year basis.
G identifies years when the year end price for Englehard industrial gold bullion declined by three percent or more.
S&P identifies years when the average monthly values for the S&P composite stock price index declined by one percent or more on either a Dec.-Dec. basis or a June-Dec. basis and cases where the index declined by one percent or more on an end of the year closing value basis or an end of June to end of year closing value basis.
*Identifies financial returns following zero or only one indicator pointing in the direction of a following year without a recessionary peak in economic activity. The average financial return for these years is only 2.4 percent.
Following Year
Year S&P FRU MS WFR VOL STP SU BFR RV D E S&P Return
1946 x x 5.5
1947---------------------------------------------------------- 5.4*
1948 x x x 17.8
1949 x 30.5*
1950 x 23.4*
1951 x x x x 17.7
1952---------------------------------------------------------- - 1.2*
1953 x x x 51.2
1954 x x x x 31.0
1955 x 6.4*
1956---------------------------------------------------------- -10.4*
1957 x x 42.4
1958 x x x x x 11.8
1959---------------------------------------------------------- .3*
1960 x x x 26.6
1961 x x x - 8.8
1962 x x x 22.5
1963 x 16.3*
1964 x x 12.3
1965 x -10.0*
1966 x x x x x 23.7
1967 x x x 10.8
1968---------------------------------------------------------- - 8.3*
1969 x 3.5*
1970 x x x x x x 14.1
1971 x x x x 18.7
1972---------------------------------------------------------- -14.5*
1973 x -26.0*
1974 x x x 36.9
1975 x x x x x x x x 23.6
1976 x x - 7.2
1977 x x x x 6.4
1978 x x x x x x 18.4
1979---------------------------------------------------------- 31.5*
1980---------------------------------------------------------- - 4.8*
1981 x x 20.4
1982 x x x x x 22.3
1983 x x x x 6.0
1984 x x 31.1
1985 x x x 18.5
1986 x x 5.7*
1987 x x x x 16.3
1988 x x x 31.2
1989---------------------------------------------------------- - 3.1*
1990 x x x x x 30.0
1991 x x x x x 7.4
1992 x x 9.9*
1993 x x 1.3*
1994 x x x 37.1
1995 x x x 22.3
1996 x ?
Footnotes for Table 21.6
S&P identifies years when the average monthly values for the S&P composite stock price index declined by one percent or more on either a Dec.-Dec. basis or a June-Dec. basis and cases where the index declined by one percent or more on an end of the year closing value basis or an end of June to end of year closing value basis.
FRU represents years when the financial return for the S&P composite stock price index in column 5 of Table 19.1 increased 16 percentage points or more.
MS represents years when the growth rate for M1 in column 1 of Table 19.1 increased and the average value for the S&P composite stock price index for December was down somewhat from its preceding monthly average cyclical high.
WFR represents years with positive financial returns for the S&P index that are identified with an asterisk in Table 19.2 that were a bit lower than the alternative return that could have been obtained from Treasury bills.
VOL represents years with Dec.-Dec. declines in the volume of shares traded on the NYSE of ten percent or more.
STP represents a triple combination of favorable developments for the US economy when the financial returns for the S&P were positive, the Dec.-Dec. yield on new issues of 3-month Treasury bills was down and the Dec.-Dec. inflation rate for the all item CPI was also down.
SU represents years when the Nov.-Nov. percentage change in initial unemployment claims was negative and the average December value of the S&P composite stock price index was at least 1.7 percent less than its preceding monthly average cyclical high.
BFR represents an annual financial return for the S&P composite stock price index in column 5 of Table 19.1 equal to 34 percent or more.
RV represents differences of 16 percentage points or more between the high- low range for the S&P index expressed in percentage points minus the current year financial return for the S&P index.
D represents years when the dividend growth rate for the S&P 500 declined by at least 2.5 percent or more.
E represents years when Federal Reserve profits in the national income and product accounts Table 6.16C declined or the earnings associated with the S&P 500 declined on a year-year basis by six percent or more.
*Identifies financial returns following zero or only one indicator pointing in the direction of a following year without an recessionary peak in economic activity.
Year YS TS IR M1 MB RBP HS DCI IP EMP GDP U PEL CE 1946 x 1947----------------------------------------------------------------------- 1948 x 1949 x x x x x x 1950 x x x x 1951 x x 1952----------------------------------------------------------------------- 1953 x x x x x x 1954 x x x x x x 1955 1956----------------------------------------------------------------------- 1957 x x x x x x 1958 x x x x x x 1959----------------------------------------------------------------------- 1960 x x x x x 1961 x x 1962 x x x x 1963 1964 x 1965 x 1966 x x x 1967 x x x 1968----------------------------------------------------------------------- 1969 x x 1970 x x x x x x x x x 1971 x x x x x 1972----------------------------------------------------------------------- 1973 1974 x x x x x x 1975 x x x x x 1976 x x x x 1977 x x x 1978 x x x 1979----------------------------------------------------------------------- 1980----------------------------------------------------------------------- 1981 x x x x x x 1982 x x x x x x x x x x 1983 x x x x x 1984 x x x x 1985 x x x x 1986 x x x x x x x 1987 x x x 1988 1989----------------------------------------------------------------------- 1990 x x x x x x x x x 1991 x x x x x x x x 1992 x x x x 1993 x x x x x 1994 x x 1995 x 1996 ? x
Footnotes for Table 21.7
YS represents a yield spread of 3.2 percentage points or more between the December yield on Moody's Baa bond index and the last offering yield for 91 day Treasury bills in column 3 of Table 7.6.
TS represents years when the December yield for the ten year Treasury bond was at least .85 percentage points higher than the December yield on one year Treasury notes. This indicator signal is based on data that has only been extended back to 1953.
IR identifies years when the December-December CPI inflation rate was under four percent and the last offering yield for new issues of 3-month Treasury for bills for December was down from the previous year.
M1 represents cases where the Dec.-Dec. growth rate for M1 in Table 19.1 increased by three percentage points or more.
MB represents years when the growth rate for M1 in column 1 of Table 19.1 increased and there was a Nov.-Nov. decline in residential building permits.
RBP represents years since 1948 when BEA's index of new private housing units authorized by local building permits increased by 16 percent or more on a Dec.-Dec. basis.
HS represents years since 1948 when new private housing units started increased by 12 percent or more on a November-November basis.
DCI represents a year when the diffusion index for the Conference Board's composite index of coincident indicators was less than .5 during November.
IP represents years when industrial production declined by one percent or more on a Dec.-Dec. basis.
EMP represents years when there was a Nov.-Nov. decline in payroll employment.
GDP represents year-to-year growth rates for chain weighted real GDP equal to six percent or more from Table 8.4.
U represents years when the December unemployment rate was up at least one percentage point from its yearly low.
PEL represents the second year of a presidential term. Since 1923 there has never been a recessionary peak during the third year of a presidential term.
CE represents May to June declines in the University of Michigan's index of consumer expectations amounting to 5.9 percent or more.
Year % Change Leading Indicators Following Growth
Dec.-Dec. June-Dec. Sept.-Dec. Rate Real GNP
(1) (2) (3) (4)
1959 .9 - .4 .1 2.2
1960 - 1.2 .0 - .1 2.1
1961 4.5 1.7 1.3 6.0
1962 .9 1.4 .8 4.3
1963 2.7 .9 .4 5.8
1964 3.0 1.4 .5 6.4
1965 2.9 1.8 1.6 6.4
1966 - 1.8 - 1.2 - .6 2.6**
1967 3.0 1.7 .7 4.7
1968 1.6 1.4 .8 3.0
1969 - 1.6 - 1.2 - 1.0 .0**
1970 - .4 1.1 1.1 3.3
1971 3.9 1.7 1.4 5.4
1972 4.1 2.6 .9 5.7
1973 - 2.7 - 1.8 - 1.0 - .4**
1974 - 6.3 - 4.6 - 2.3 - .6**
1975 5.1 2.3 .8 5.6
1976 3.8 1.5 .9 4.9
1977 .9 .1 .1 5.0
1978 - .5 - .8 - .9 2.9
1979 - 2.4 - 1.7 - 1.4 - .3**
1980 .2 2.0 - .4 2.5
1981 - 1.1 - .9 - .6 - 2.1**
1982 2.4 2.4 1.3 4.0
1983 5.2 1.1 .7 6.8
1984 .6 .3 .8 3.7
1985 1.1 .5 .2 3.0
1986 1.7 .8 .6 2.9
1987 .6 - .2 - .6 3.8
1988 .4 - .5 .1 3.4
1989 - .6 .4 .1 1.3
1990 - 1.7 - 1.7 - .8 - 1.0**
1991 1.1 - .2 - .4 2.7
1992 1.9 1.1 1.1 2.3
1993 .2 .9 .8 3.5
1994 .4 .2 .2 2.0
1995 - .4 .7 .1 2.4
1996 1.6 .5 .3 ?
Footnotes for Table 21.8
**A poor growth rate for real GNP is predicted if the index of leading indicators declines by .6 percent or more on a Dec.-Dec. basis, on a June- Dec. basis and on a Sept.-Dec. basis.
Source of Basic data: http://www.stat-usa.gov/BEN/ebb2/bea/bci-01a.prn and Standard & Poor's Security Price Index Record.
Year November to November % Change in Following Year Growth Rate
Unemployment Housing Consumer Real GNP S&P Financial
Claims Starts Sentiment Return
(1) (2) (3) (4) (5)
1948 22.7* -23.2* --- .0** 17.8$
1949 63.0* 49.2 --- 8.5 30.5$@
1950 -41.9 -12.6 --- 10.3# 23.4
1951 5.0 -15.2 --- 3.9# 17.7
1952 -19.5 11.4 --- 4.0 - 1.2
1953 76.3* - 6.2 - 6.4* - 1.3** 51.2$
1954 - 7.4 25.1 7.8 5.6 31.0@
1955 -22.1 -17.1 14.6 2.1# 6.4
1956 3.7 -15.5 .5 1.7# -10.4
1957 43.5* - 4.1 -16.5* - .8** 42.4$
1958 - 2.8 37.1 8.5 5.8 11.8@
1959 12.9 -11.1 3.3 2.2# .3
1960 9.7 -12.0 - 3.9 2.1# 26.6
1961 -20.8 11.2 3.2 6.0 - 8.8
1962 - 2.0 17.1 2.2 4.3 22.5
1963 - 7.7 .0 - .6 5.8 16.3
1964 - 5.1 - 8.4 5.8 6.4 12.3
1965 -19.1 - 1.7 3.0 6.4 -10.0
1966 - 1.9 -34.2* -14.2* 2.6** 23.7
1967 .5 60.0 5.2 4.7 10.8@
1968 - 9.1 6.0 - 1.3 3.0 - 8.3
1969 11.1 -24.6* -13.1* .0** 3.5
1970 52.6* 34.0 - 9.2* 3.3** 14.1$@
1971 -12.1 32.5 13.3 5.4 18.7@
1972 -14.8 11.0 10.6 5.7 -14.5
1973 4.1 -28.8* -15.7* - .4** -26.0
1974 88.4* -40.5* -22.2* - .6** 36.9$
1975 -16.9 32.6 27.1 5.6 23.6@
1976 - .8 20.7 15.1 4.9 - 7.2
1977 -11.0 24.4 - 3.0 5.0 6.4
1978 - 2.0 2.5 -11.1* 2.9 18.4
1979 23.5* -27.2* -15.6* - .3** 31.5$
1980 .5 - .9 21.2 2.5 - 4.8
1981 27.7* -44.6* -18.5* - 2.1** 20.4$
1982 14.3 63.9 15.4 4.0 22.3@
1983 -38.1 30.1 26.4 6.8 6.0@
1984 4.2 - 5.4 5.0 3.7 31.1
1985 - 6.5 .5 - 5.0 3.0 18.5
1986 - 5.4 - 4.4 .6 2.9 5.7
1987 -13.7 2.0 - 9.1* 3.8 16.6
1988 - 1.7 - 5.3 11.9 3.4 31.2
1989 13.4 -13.9 - 2.3 1.3# - 3.1
1990 32.2* -15.2 -27.4* - 1.0** 30.0$
Year November to November % Change in Following Year Growth Rate
Unemployment Housing Consumer Real GNP S&P Financial
Claims Starts Sentiment Return
(1) (2) (3) (4) (5)
1991 - 1.8 - 3.8 4.7 2.7 7.4
1992 -14.6 10.1 23.4 2.3 9.9
1993 - 9.1 15.4 - 4.8 3.5 1.3
1994 - 4.1 9.6 12.8 2.0 37.1
1995 14.7 - 7.6 - 3.7 2.4 22.3
1996 -10.7 3.8 12.5 ? ?
Footnotes for Table 21.9
*A poor growth rate for real GNP is predicted if unemployment claims increase by 22 percent or more, if housing starts decline by 23 percent or more or if the index of consumer sentiment declines by six percent or more.
**Following year growth rates for real GNP when at least two of the three indicators are predicting a poor growth rate for real GNP.
#Since 1952 there has been a high incidence of slow and below average growth rates for real GNP that can be identified by a decline in housing starts of ten percent or more.
$Financial returns following years when the unemployment claims in column (1) increased by 16 percent or more.
@Financial returns following years when housing starts in column (2) increased 25 percent or more.
Source of Basic Data: BCI series 5, 28, 58 and 50 and Standard and Poor's Security Price Index Record.
December Down Ratios for
Year Nov. ----------------------------------------
Decline Help Wanted Real Stock Inverted Following
Ratio Advertising M1 Prices Treasury Year Growth
Building to Persons Bill Rate Rate for
Permits Unemployed Real GNP
(1)n (2) (3) (4) (5) (6)
1948 .788* .619* 909* .812* .330* .0**
1949 1.646 .951 1.002 l.027 .945 8.5
1950 .872 .940 .967* .994 .759 10.3
1951 .736* .932 .965* .997 .601 3.9
1952 1.289 1.046 .992 1.034 .488 4.0
1953 .853* .350* .993 .948* .638 - 1.3**
1954 1.359 1.090 1.006 1.046 .556 5.6
1955 .791* 1.044 .999 1.009 .254* 2.1#
1956 .871 .881* .981 .952 .201* 1.7#
1957 .945 .475* .946* .827* .210* - .8**
1958 1.515 1.063 1.005 1.019 .313* 5.8#
1959 .751* .935 .977 .989 .193* 2.2#
1960 .915 .561* .970 .951 .388* 2.1#
1961 1.176 1.010 1.003 1.009 .866 6.0
1962 1.074 .908 1.003 .873* .794 4.3
1963 1.057 .971 .994 1.016 .645 5.8
1964 .923 .973 1.002 .983 .588 6.4
1965 1.042 1.035 1.004 .995 .521 6.4
1966 .563* .936 .984 .872* .453 2.6
1967 1.707 .895 1.002 .995 .453 4.7
1968 1.107 .985 1.004 1.010 .383* 3.0#
1969 .829* .873* .968* .856* .294* .0**
1970 1.261 .965 .998 1.068 1.088 3.3
1971 1.384 .994 .999 .962 .826 5.4
1972 1.057 1.104 1.009 1.021 .628 5.7
1973 .627* .879* .965* .800* .432* - .4**
1974 .558* .413* .895* .566* .443* - .6**
1975 1.417 1.006 .978 .959 .944 5.6
1976 1.380 1.002 .991 .992 1.106 4.9
1977 1.157 1.100 1.001 .890* .718 5.0
1978 .949 .956 .987 .911* .477 2.9
1979 .711* .889* .932* .992 .360* - .3**
December Down Ratios for
Year Nov. ----------------------------------------
Decline Help Wanted Real Stock Inverted Following
Ratio Advertising M1 Prices Treasury Year Growth
Building to Persons Bill Rate Rate for
Permits Unemployed Real GNP
(1)n (2) (3) (4) (5) (6)
1980 1.083 1.000 .979 .984 .519 2.5
1981 .541* .687* .960* .913* .744 - 2.1**
1982 1.642 1.032 1.009 1.009 1.004 4.0
1983 1.356 1.064 1.000 .980 .872 6.8
1984 .973 1.017 1.006 .981 .957 3.7
1985 1.030 .979 1.008 1.050 .992 3.0
1986 .972 .985 1.022 1.013 .944 2.9
1987 .886 .971 .982 .732* .893 3.8
1988 1.035 1.008 .987 .840* .640 3.4
1989 .892 .905 .952* 1.003 .678 1.3
1990 .700* .566* .932* .912* .761 - 1.0**
1991 1.048 .874 1.007 .998 1.117 2.7
1992 1.135 .891 1.007 1.030 .874 2.3
1993 1.214 1.039 1.003 1.004 .922 3.5
1994 .974 1.061 .986 .962 .504 2.0
1995 1.066 .931est .942* 1.032 .550 2.4
1996 .944 ? .932* 1.010 .608 ?
The down ratio is the December value of the index expressed as a proportion of its previous cyclical high.
(1)n. The November building permit index divided by the building permit index for the preceding November.
*A poor growth year is predicted by a decline ratio of .854 or less for building permits; a down ratio of .890 or less for the ratio of help-wanted advertising in newspapers to persons unemployed; a down ratio of .969 or less for M-1; a down ratio of .950 or less for stock prices; and a down ratio of .450 or less for the inverted yield on new 91-day Treasury bills.
**Those years where three or more of the ratios are predicting a poor growth rate in the following year.
#Mostly slow and below average growth years that are identified by a December down ratio of .450 or less for the inverted yield on new 91-day Treasury bills.
Source of basic data: BCI series 29, 60, 105, 19, 114, and 50.
Year Index of Crude Oil Unempl. Claims Stock Prices Indicator Following Year
Leading Price Housing Starts and Other Sum Growth Rate
Indicators Shocks Consumer Sent. Indicators Real GNP
(1)n (2)n (3)n (4)n (5)n (6)
(1)n (2)n (3)n (4)n (5)n (6)
1948 3 2 2 5 12 .0**
1953 3 2 2 3 10 -1.3**
1957 3 2 2 4 11 - .8**
1966 3 0 2 2 7 2.6
1969 3 2 2 5 12 .0**
1973 3 2 2 5 12 - .4**
1974 3 2 3 5 13 - .6**
1979 3 2 3 4 12 - .3**
1981 3 2 3 4 12 -2.1**
1990 3 2 2 4 11 -1.0**
(1)n. From Table 21.8. A poor growth year is predicted if BEA's index of leading indicators decline .8 percent or more on a Dec.-Dec. basis, on a June-Dec. basis and on a Sept.-Dec. basis or in the years since 1958 if the Conference Board's revised index of leading indicators declined .6 percent or more on a Dec.-Dec. basis, on a June-Dec. basis and on a Sept.-Dec. basis.
(2)n. From Table 11.3. A poor growth year is predicted if the price of US crude oil at the well head (first purchase price) has increased five percent or more on a year-to-year basis and the index of industrial production has increased by .1 percent or less on a June-Dec. basis.
(3)n. From Table 21.9. A poor growth year is predicted if unemployment claims increased 22 percent on a Nov.-Nov. basis, if housing starts declined by 23 percent or if consumer sentiment declined by six percent or more.
(4)n. From Table 21.10. A poor growth year is predicted by a Nov.-Nov. decline ratio of .890 for residential building permits; a Dec. down ratio of .890 or less for the ratio of help-wanted advertising in newspapers to persons unemployed; a down ratio of .969 or less for M-1; a down ratio of .950 or less for stock prices: and a down ratio of .450 or less for the inverted yield on new 91-day Treasury bills.
(5)n. The sum of the number of indicators in columns (1) through (4) which are pointing in the direction of a poor growth year.
**Those years when ten or more of the indicators in columns (1) through (4) are pointing in the direction of a poor growth year.
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