March 1, 2001

Stock and Watson Indicator Report

January 2000


The Experimental Index of Coincident Indicators (XCI) was 244.6 in January, the same as in December but below its November value of 245.5, based on the most recently available data.  During the three months from October to January the XCI fell by 2.3% at an annual rate.  During the previous three months from July to October, the XCI grew 0.7% at an annual rate.  Over the entire six months from July to January, the XCI therefore fell 0.8% at an annual rate.


The Experimental Leading Index (XLI) for January is 5.2.  This index, based on seven leading indicators, is a forecast of the percentage growth of the XCI (at an annual rate) over the next six months, from January to July 2001.


Of the indicators used to calculate the XLI, six made a positive contribution to the index, relative to trend: housing authorizations (building permits); manufacturers' unfilled orders; exchange rates; the yield on 10-year U.S. Treasury bond; 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.  One of the indicators, part-time employment due to slack work, made a negative contribution to the index, relative to trend.


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 3% in January, indicating an 3% probability that the economy will be in a recession in July 2001.  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 4% probability that the economy will be in a recession in July 2001.


Figure 4 shows the probability that the economy will be in a recession during each of the months from January to July 2001, computed using data through January.  Based on the data through January for the variables in the XRI, the probability that the economy was in a recession in January is 1%, the probability of being in a recession in February is 1%, and the probability of being in a recession in July is 3%.  Based on the variables in the XRI-2, the probability that the economy was in a recession in January is 1%, the probability of being in a recession in February is 1%, and the probability of being in a recession in July is 4%.


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 January 2001 
 









 Experimental Leading Index (XLI)        5.2 



 Experimental Recession Index (XRI)        3 % 



 Experimental Coincident Index (XCI)      244.6 



 Nonfinancial Experimental Recession Index (XRI-2)        4 % 


















Components of the Experimental Leading Index 






  Series   Contribution  



 Housing starts (building permits)

        1.1 



 Manufacturers' unfilled orders (durable goods industries)

        0.1 



 Trade-weighted exchange rate

        0.1 



 Part-time work   

       -0.7 



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

        0.3 



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

        0.6 



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

        0.3 



 Trend           

        3.5 




















Recent values of the Indexes (based on revised data)






00:1200:1100:1000:0900:0800:0700:0600:0500:0400:0300:0200:01


 XLI         3.1         3.4  
       3.1         3.1         3.3  
       4.2         3.3         1.9  
       2.8         3.5         4.2  
       5.1 


 XRI 
     8 %
    11 %
     8 %
     5 %
     4 %
     3 %
     6 %
    12 %
     4 %
     3 %
     3 %
     3 %



 XCI 
      244.6 
      245.5 
      246.0 
      246.5 
      246.1 
      245.6 
      245.1 
      244.9 
      244.3 
      243.1 
      242.1 
      241.6 



 XRI-2 
    11 %
     6 %
     7 %
     8 %
     7 %
     8 %
    10 %
    10 %
    10 %
     8 %
     6 %
     4 %



  Components of the Experimental Leading Index  


 Housing BP             -0.1  
        0.7  
        0.3  
       -0.1  
       -0.5  
       -0.4  
       -0.8  
       -1.3  
       -1.1  
       -0.8  
        0.3  
        1.2  

 

 MD Unf Ord              0.2  
        0.7  
        0.4  
        0.5  
        0.7  
        1.0  
        1.3  
        0.8  
        0.5  
        0.4  
        0.5  
        0.6  

 

 Exchange Rates         -0.2  
       -0.3  
       -0.2  
        0.2  
        0.2  
       -0.0  
       -0.1  
       -0.1  
       -0.0  
       -0.1  
       -0.0  
        0.1  

 

 Part Time Wk.          -0.7  
       -1.1  
       -1.0  
       -1.2  
       -0.7  
       -0.1  
       -0.4  
       -0.7  
       -0.1  
        0.1  
        0.0  
       -0.4  

 

 10yr TBond Rate         0.2  
        0.1  
        0.1  
        0.2  
        0.2  
        0.1  
       -0.0  
        0.1  
        0.3  
        0.2  
       -0.1  
       -0.3  

 

 3mtCP,3mtTB Spr         0.4  
        0.0  
        0.2  
       -0.1  
       -0.2  
       -0.1  
       -0.4  
       -0.9  
       -0.6  
       -0.1  
       -0.1  
       -0.2  

 

 10yrTB,1yrTB Spr       -0.2  
       -0.5  
       -0.4  
       -0.4  
       -0.6  
       -0.4  
       -0.4  
       -0.2  
       -0.4  
       -0.5  
       -0.4  
       -0.1  

 

 Trend                   3.5  
        3.7  
        3.8  
        4.1  
        4.2  
        4.2  
        4.1  
        4.2  
        4.3  
        4.3  
        4.1  
        4.2