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Business Cycle Index

Posted: February 20, 2018 using data as of January 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.

January employment report: Stronger wages add more pressure on bonds

The biggest watch point coming out of the January employment report was wage growth. The broadest measure—average hourly earnings for all employees—surprised modestly to the upside in January. Up 0.3% in January, it improved to 2.9% year-on-year, placing it above consensus expectations. The earnings growth data for production and non-supervisory workers was more subdued—up only 0.1%. This is one of the widest spreads in the history of the two wage indexes and suggests wage pressure might be more significant at the high end of the labor market.

The strong employment report (200,000 jobs added in January, unemployment rate steady at 4.1%), should keep the Fed on track for a March interest rate hike. Our baseline forecast is still for three total hikes 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.

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.

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.