Discerning ‘Turning Points’ with Cyclical Indicators: A Few Lessons from ‘Real Time’ Monitoring the 2008–2009 Recession

Abstract

The cyclical indicators approach has been used for decades but the last recession has once more rekindled an interest for them throughout the world. Several new techniques and indicators were introduced in recent years but the actual quality of these ‘newcomers‘ was not well established. During the last recession, performance of such ‘veterans’ as indexes by The Conference Board, ECRI, ISM, PhilFed, OECD, etc. has also not been checked in a comprehensive and comparable manner. Another problem with cyclical indicators is that their usage in real time has not yet been fully clarified. Contemporary global economic life is measured in days and hours, but most common economic indicators have inevitable lags of months and sometimes quarters (GDP). Is it possible for a leading indicator (which is monthly in most cases) to be timely? Moreover, the real-time picture of economic dynamics may differ in some sense from the same picture in its historical perspective, because all fluctuations receive their proper weights only in the context of the whole. Therefore, it’s important to understand whether the existing indicators are really capable of providing important information for decision-makers. In other words, could they be useful in real-time? What does the experience of the last recession tell us in this regard? This paper answers these questions for the USA as well as for Russia.

Keywords: business cycle, recession, turning point, leading indicators, Russia

JEL Classification: E32