WHY THE COMPOSITE INDEX OF LEADING INDICATORS DOES NOT LEAD

Evan Koenig and Kenneth M. Emery

Contemporary Economic Policy, 1994, vol. 12, issue 1, 52-66

Abstract: This paper assesses the real‐time performance of the Commerce Department's composite index of leading indicators. The authors find that the composite leading index has failed to provide reliable advance warning of cyclical turning points. One reason for this failure is that the leading index's transition from expansion to contraction generally is not very sharp. Consequently, discerning real‐time cyclical peaks in the index is difficult. Transitions from contraction to expansion on average are sharp. However, cyclical troughs in the leading index often precede cyclical troughs in the economy by only a few months. Thus, even timely recognition of troughs in the leading index fails to provide advance warning of turnarounds in the general level of economic activity.

Date: 1994
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https://doi.org/10.1111/j.1465-7287.1994.tb00412.x

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Working Paper: Why the composite index of leading indicators doesn't lead (1993)
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