Monitoring Business Cycles Today

State-of-the-Art Forecasting

Since the original index of leading economic indicators (LEI) was created by ECRI co-founder Geoffrey H. Moore and adopted by the U.S. government in the 1960s, our ability to predict turning points has advanced considerably. Still, it is a testament to the quality of that breakthrough that, nearly half a century later, many believe the LEI and its variants to be the best tools for cycle forecasting.

Building on that foundation, by the mid-1990s ECRI had developed a far more sophisticated framework for analyzing international economic cycles that remains at the cutting edge of business cycle research and forecasting.

Our Latest Major Advancements

Since the mid-1990s we have made major strides on many fronts:

• Developing economic indicator systems for most major economies, including the first leading indexes for China, India and Brazil.
• Creating a comprehensive framework of leading indexes for key aspects of each economy (economic growth, inflation and employment) and for major sectors (services, manufacturing, construction, and foreign trade).
• Making major advances in index construction, addressing serious flaws in conventional approaches.
• Pioneering sequential turning point recognition systems based on quantitative analysis.

An objective, comprehensive framework for monitoring economic cycles

Today, ECRI uses this highly nuanced “many-cycles” view to understand the complex dynamics of the global economy.

A Framework That Provides Clarity

During periods of so-called “low visibility,” confusion reigns: for every indication of one trend, there seems to be evidence of a countertrend.

The key is to glean from the collective wisdom of reliable leading indicators a clear signal that the economy is headed for a turn. But a single composite index is not enough.

• To monitor the U.S. economy alone, ECRI uses an array of more than a dozen specialized leading indexes in the context of an “economic cycle cube” – our framework for incorporating various sectors and aspects of the economy (see chart)
  
  
• To monitor each major economy ECRI uses a similar framework incorporating indexes that are designed to be comparable across borders. Collectively, these add up to well over 100 proprietary indexes.

Objective Analysis, Durable Sequences

The durable sequences linking the indicators we monitor allow us to make sense of the consistent patterns at cyclical turning points. They let us objectively sort through data about the economy, while filtering out the “noise.” Unlike econometric models, ECRI's indexes are not based on data-fitting, and do not need to be tweaked or adjusted to account for new data or events.

The cyclical sequences within our overarching framework endure, regardless of the drama or confusion that distracts and preoccupies economists at of any particular moment.