Comprehensive Benchmark Revisions for The Conference Board Leading Economic Index® for the United States

The Conference Board Economics Program Working Paper No. 11-06

30 Pages Posted: 5 Jan 2012

See all articles by Ataman Ozyildirim

Ataman Ozyildirim

The Conference Board

Gad Levanon

affiliation not provided to SSRN

Brian Schaitkin

affiliation not provided to SSRN

Justyna Zabinska-La Monica

The Conference Board

Date Written: December 20, 2011

Abstract

Following an extensive reevaluation of existing indicators included in The Conference Board Leading Economic Index® for The United States, we propose a comprehensive revision of the composite index. In this paper we present the case for replacing three of the components and making a minor adjustment to one other component. The resulting index addresses structural changes that have occurred in the U.S. economy in the last several decades. The changes in the LEI composition include: 1) incorporating in the LEI a new Leading Credit Index (LCI) rather than real money supply (M2) starting in 1990 (real M2 remains in the index before 1990); 2) replacing the ISM Supplier Delivery Index with the ISM New Orders Index; 3) replacing the Reuters/University of Michigan Consumer Expectations Index with an equally weighted average of consumer expectations of business and economic conditions using questions from surveys conducted by Reuters/University of Michigan and The Conference Board; and 4) replacing “New Orders for (nondefense) Capital Goods” with “New Orders for (nondefense) Capital Goods excluding Aircraft.” These changes are assessed using turning point analysis, probit models and an indicator scoring system based on Markov Switching models. Real time out-of-sample forecasting exercises are used to confirm that the changes to the composition help the LEI forecast more accurately future economic conditions.

Keywords: business cycles, turning points, leading economic indexes, forecasting, time series, Markov Switching, probit, out-of-sample forecasting, diffusion indexes

JEL Classification: E32, C52, C53, C22, C80

Suggested Citation

Ozyildirim, Ataman and Levanon, Gad and Schaitkin, Brian and Zabinska-La Monica, Justyna, Comprehensive Benchmark Revisions for The Conference Board Leading Economic Index® for the United States (December 20, 2011). The Conference Board Economics Program Working Paper No. 11-06. Available at SSRN: https://ssrn.com/abstract=1979803 or http://dx.doi.org/10.2139/ssrn.1979803

Ataman Ozyildirim (Contact Author)

The Conference Board ( email )

845 Third Avenue
New York, NY 10022
United States

Gad Levanon

affiliation not provided to SSRN ( email )

Brian Schaitkin

affiliation not provided to SSRN ( email )

Justyna Zabinska-La Monica

The Conference Board ( email )

845 Third Avenue
New York, NY 10022
United States

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