May 22, 2003

Stock and Watson Indicator Report

March 2003


The Experimental Index of Coincident Indicators (XCI) was 232.1 in March, down slightly from its February value of 233.2, based on the most recently available data.  During the three months from December 2002 to March 2003 the XCI fell by 0.7% at an annual rate.  During the previous three months from September to December, the XCI fell by 1.7% at an annual rate.  Over the entire six months from September to March, the XCI therefore fell 1.2% at an annual rate.


A calculation based on the variables in the XCI indicates that the probability that the economy was in a recession in March is 39%.  Historical values of this Experimental Concident Recession Index (XRI-C) are shown in Figure 4.


The Experimental Leading Index (XLI) for March is 1.3.  This index, based on seven leading indicators, is a forecast of the percentage growth of the XCI (at an annual rate) over the six months from March to September 2003.


Of the indicators used to calculate the XLI, five made a positive contribution to the index, relative to trend:  manufacturers' unfilled orders;  exchange rates;  the yield on 10-year U.S. Treasury bonds;  the premium on 3-month commercial paper over 3-month U.S. Treasury bills;  and the spread between the yield on 10-year vs. 1-year U.S. Treasury bonds.  Two of the indicators made a negative contribution to the index, relative to trend:  housing authorizations (building permits); and and part-time employment due to slack work.


Based on the most recent data, the Experimental Recession Index (XRI), which estimates the probability that the economy will be in a recession six months later, was 12% in March indicating a 12% probability that the economy will be in a recession in September 2003.  The alternative experimental recession index (the XRI-2), which is based on seven leading indicators that do not include interest rates or interest rate spreads, estimates a 9% probability that the economy will be in a recession in September 2003.


For further information contact:

James Stock  phone: (617) 496-0502      email:  james_stock@harvard.edu

Mark Watson  phone: (609) 258-4811      email:  mwatson@princeton.edu






THESE FORECASTS AND THEIR INTERPRETATION ARE THOSE OF THE PRINCIPAL INVESTIGATORS AND DO NOT NECESSARILY REPRESENT THE VIEWS OF OTHER RESEARCHERS AT THE NBER OR THE DIRECTORS OR OFFICERS OF THE NBER.  THIS IS NOT A PUBLICATION OF THE NBER.  ANYONE WISHING TO REFER TO IT SHOULD CITE THE SOURCE AS "JAMES STOCK AND MARK WATSON."










 
Data for March 2003 
 









 Experimental Leading Index (XLI)       1.3 




 Experimental Leading Recession Index (XRI)
      12 % 



 Experimental Coincident Index (XCI)     232.1 



 Experimental Coincident Recession Index (XRI-C)
      39 % 



 Nonfinancial Experimental Leading Recession Index (XRI-2)       9 % 


















Components of the Experimental Leading Index 






  Series   Contribution  



 Housing starts (building permits)

       -0.9 



 Manufacturers' unfilled orders (durable goods industries)

        0.1 



 Trade-weighted exchange rate

        0.3 



 Part-time work   

       -0.4 



 Interest rate on 10-year U.S. Treasury bonds

        0.1 



 Interest spread: 3-month commercial paper minus 3-month T-bills

        0.9 



 Interest spread: 10-year minus 1-year Treasury bonds

        0.7 



 Trend           

        0.6 




















Recent values of the Indexes (based on revised data)






03:0203:0102:1202:1102:1002:0902:0802:0702:0602:0502:
0402:03


 XLI         1.8  
       2.9         3.1  
       2.3         3.1  
       3.5         3.8  
       4.4         4.3  
       3.7         3.2  
       4.4 


 XRI 
    12 %
     8 %
     7 %
     7 %
     4 %
     3 %
     4 %
     3 %
     2 %
     3 %
     3 %
     2 %



 XCI 
      232.2 
      233.4 
      232.5 
      233.4 
      233.1 
      233.5 
      233.8 
      233.7 
      233.4 
      232.6 
      232.1 
      231.8 



 XRI-C 
    41 %
     7 %
    39 %
     9 %
    22 %
     9 %
     4 %
     2 %
     1 %
     3 %
     6 %
     9 %



 XRI-2 
     6 %
     7 %
     7 %
    12 %
     8 %
     9 %
     8 %
     6 %
     7 %
     7 %
     9 %
     8 %



  Components of the Experimental Leading Index  


 Housing BP             -0.2  
        0.3  
        1.2  
        0.3  
        0.9  
        0.6  
        0.1  
        0.5  
        0.5  
        0.1  
       -0.3  
        0.3  

 

 MD Unf Ord             -0.1  
        0.0  
       -0.0  
       -0.4  
       -0.4  
       -0.2  
        0.0  
       -0.1  
       -0.5  
       -0.3  
       -0.3  
       -0.0  

 

 Exchange Rates          0.3  
        0.0  
       -0.2  
       -0.3  
        0.0  
        0.5  
        0.6  
        0.3  
        0.0  
       -0.1  
       -0.2  
       -0.2  

 

 Part Time Wk.          -0.2  
       -0.0  
        0.1  
       -0.0  
       -0.2  
       -0.1  
        0.1  
        0.5  
        1.0  
        0.8  
        1.0  
        1.3  

 

 10yr TBond Rate         0.1  
       -0.1  
       -0.2  
       -0.1  
        0.2  
        0.4  
        0.5  
        0.4  
        0.2  
       -0.0  
       -0.1  
       -0.1  

 

 3mtCP,3mtTB Spr         0.9  
        0.9  
        0.9  
        0.9  
        0.9  
        1.0  
        1.1  
        1.2  
        1.3  
        1.3  
        1.3  
        1.3  

 

 10yrTB,1yrTB Spr        0.7  
        0.8  
        0.8  
        0.9  
        0.7  
        0.4  
        0.5  
        0.7  
        0.8  
        0.9  
        0.9  
        0.9  

 

 Trend                   0.5  
        1.0  
        0.6  
        1.0  
        0.9  
        0.9  
        0.9  
        0.9  
        1.0  
        0.9  
        0.9  
        0.9