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Business Cycle Index

Posted: July 18, 2017 using data as of June 31, 2017 (Originally published: September 16, 2009)
Updated: Monthly

Our forecasts are designed to anticipate changes before they occur and to help you extract meaning from the noise.

June employment report: Goldilocks

The June employment report revealed an increased pace to job growth—rebounding strongly to 222,000, up from 152,000 in May.The unemployment rate also ticked up marginally from 4.3% to 4.4%, still below the Fed’s NAIRU (non-accelerating inflation rate of unemployment) range of 4.7%-5.0%. Desipite the strong June employment report, the very low unemployment rate is still failing to translate into broader inflationary pressures.

Although job growth increased, wages lagged in this most recent report. Broader wage trends have been stuck in a holding pattern since mid-2016. Therefore, we remain wary that the recent weakness in core inflation could prove sticky, and—for now—we look for the next rate hike in 2018.

Business Cycle Index

Source: Recession dates from National Bureau of Economic Research

Out of sample forecasts were calculated by simulating the time-series model into the future. The value shown is the median of the simulated value for the month.

Current reading and trend
  • We still expect 2.0% GDP growth and the BCI model now estimates a 22% probability of recession in the next year.

Employment Changes

Source: Actual employment data from St. Louis FRED database.

Out of sample forecasts were calculated by simulating the time–series model into the future. The value shown is the median of the simulated value for the month.

Current reading and trend
  • The unemployment rate rose 0.1% to 4.4% in June, still well below the Fed's NAIRU (non-accelerating inflation rate of unemployment) range of 4.7%-5.0%. (A 4.5% unemployment rate is the Fed’s target rate effective now through the end of 2019).
  • Nonfarm payrolls came in at 222,000 new jobs for June and were revised up a combined 47,000 for April and May. Payrolls have averaged 194,000 over the past three months, an increase from the 121,000 in the last release.
  • Labor participation rose 0.1% to 62.8% compared to 62.7% in May.
  • Average hourly earnings rose 0.2% in May, still below consensus.
  • Our payroll model now predicts 200,000 new jobs for the next three months and 185,000 for the next year (up from 185,000 for three months and 180,000 for next year as reported in last month’s BCI report).

Frequently Asked Questions

What is the Business Cycle Index?

  • The Business Cycle Index (BCI) forecasts the strength of economic expansion or recession in the coming months, along with forecasts for other prominent economic measures.
  • The two outputs featured here are the Business Cycle Index and the Employment Forecast.
  • Inputs to the model include non-farm payroll, core inflation (without food and energy), the slope of the yield curve, and the yield spreads between Aaa and Baa corporate bonds and between commercial paper and Treasury bills. A different choice of financial and macroeconomic data would affect the resulting business cycle index and forecasts.
  • "Dynamic forecasts of qualitative variables: A Qual VAR model of U.S. recessions", published in the Journal of Business and Economic Statistics in January 2005, provides background on the statistical model behind the BCI.
  • The ongoing track record of the BCI forecasts is available on

Why is it important?

  • The BCI forecasts the future direction of the business cycle.
  • Historically, the stock market responds to investor perceptions of the future direction of the business cycle.

Can I use the BCI as a market timing tool?

  • No. The BCI is not meant to serve as a direct prediction regarding the future performance of any financial market. It is not intended to predict or guarantee future investment performance of any sort.

How do we interpret it?

  • An increase in the BCI indicates that the business cycle conditions are improving — either moving closer to exiting a recession or to stronger expansion.
  • A decrease in the BCI indicates that business cycle conditions are worsening — either moving closer to entering a recession or to a deeper recession.

How often is it updated?

  • The Business Cycle Index is updated monthly after payroll employment numbers are released and will be published around the 15th calendar day of the month.