1. 1 www.conference-board.org © 2009 The Conference Board, Inc. Job information is entered here! Trusted Insights for Business Worldwide www.conference-board.org Decision Making and Business Cycle Indicators International Seminar on Timeliness, Methodology, and Comparability of Rapid Estimates of Economic Trends Ottawa May 27, 2009 Ataman Ozyildirim Associate Director, U.S. and Global Indicators Program a.ozyildirim@conference-board.org

2. 2 www.conference-board.org © 2009 The Conference Board, Inc. Overview: What is The Conference Board and what does it do? Economic indicator programs Global business cycle indicators program Real time indicators

3. 3 www.conference-board.org © 2009 The Conference Board, Inc. Economic Indicators at The Conference Board Long tradition of economic measurement work Wide-range of indicators  Help-wanted  Consumer confidence  U.S. composite coincident and leading index  Productivity and per capita income levels and growth rates globally  Business confidence  Employment Trends Index

4. 4 www.conference-board.org © 2009 The Conference Board, Inc. U.S. Business Cycle Indicators Program Transfer from BEA 1996 Advisory board Evaluation and updating composite indicators, 1996 “Real” time analytic and production goals Introduction of statistical imputation Introduction of indexes for 10 countries and regions www.conference-board.org/economics/bci

5. 5 www.conference-board.org © 2009 The Conference Board, Inc. Global Business Cycle Indicators Modeled after U.S. system of monthly indicators Economic theory informs selection of indicators but country specific features influence choice Objectivity, consistency, and reliability Composite indexes bring cycles and turning points into focus Used in defining business cycles and anticipating turning points in business cycles Help in forecasting and economic outlook

6. 6 www.conference-board.org © 2009 The Conference Board, Inc. Coincident Economic Index helps define business cycles; Leading Economic Index helps predict turning points Employment Personal Income Manufacturing and Trade Sales Industrial Production Note: Shaded areas represent recessions as determined by the NBER Business Cycle Dating Committee.

7. 7 www.conference-board.org © 2009 The Conference Board, Inc. Producing Global Indicators Monthly releases for each country follow pre- announced release schedules Data revisions incorporated only for last six months of data Annual benchmark revisions bring history of indexes up to date with revisions in the history of indicator series Occasional comprehensive revisions

8. 8 www.conference-board.org © 2009 The Conference Board, Inc. Data Needs and Timeliness Issues Historical data required for construction Monthly, seasonally adjusted and deflated Timely data required for real time monitoring Dealing with publication lags

9. 9 www.conference-board.org © 2009 The Conference Board, Inc. Statistical Imputations, “Real Time” New procedure uses available data more efficiently Combines forecasts and actual observations U.S. LEI released at least two weeks earlier Procedure makes monthly indexes possible outside U.S Euro Area LEI schedule can be made similar to the U.S. LEI schedule But, not possible elsewhere due to lack of high frequency data Dealing with publication lags

10. 10 www.conference-board.org © 2009 The Conference Board, Inc. New procedure uses available data more efficiently January (t-2) February (t-1) Average Weekly Hours, Mfg. Yes Initial Claims, Unemp. Insurance (Inverted) Yes Manufacturers' new orders, consumer goods & materials* YesNo Suppliers’ Deliveries Index Yes Manufacturers' new orders, nondefense capital goods* YesNo Building Permits, Private Housing Yes Stock Prices, 500 Common Stocks Yes Money Supply, M2 in 2000 Dollars* YesNo Interest rate spread Yes Index of Consumer Expectations Yes Old March release: New March release:

11. 11 www.conference-board.org © 2009 The Conference Board, Inc. How Does the New Procedure Work? LEI adds forecast value But, historical versus real time differences are small and random for similar forecast periods Timelier procedure improves forecast ability in out- of-sample tests Compared to an autoregressive benchmark:  Out-of-sample forecast improvement of up to 12 % with the more timely U.S. LEI (McGuckin, Ozyildirim, and Zarnowitz, 2007)  Up to 8 % out-of-sample forecast improvement with the more timely Euro Area LEI (Ozyildirim, Schaitkin, and Zarnowitz, 2009)

12. 12 www.conference-board.org © 2009 The Conference Board, Inc. Decline in global Leading Economic Indexes begin to moderate, but prospects on timing of recovery differ Source: The Conference Board

13. 13 www.conference-board.org © 2009 The Conference Board, Inc. APPENDIX

14. 14 www.conference-board.org © 2009 The Conference Board, Inc. ECONOMISTS’ VIEW OF TIMELINESS  Real time data, forecasting, and policy making  Data revisions: news vs. noise  Testing predictive ability: model selection and inference in the presence of revisions in data  …

15. 15 www.conference-board.org © 2009 The Conference Board, Inc. Note: Shaded areas represent recessions as determined by the NBER Business Cycle Dating Committee. U.S.: Leading Economic Index Vs. Real GDP (1959 – Present))