19 – Uncertainty and Real-Time Business Cycle Analysis
Comprehensive Benchmark Revisions for the Conference Board Leading Economic Index for the United States
Justyna Zabinska La-Monica
The Conference Board
Gad Levanon
The Conference Board
Jean-Claude Manini
The Conference Board
Ataman Ozyildirim
The Conference Board
Brian Schaitkin
The Conference Board
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.
