Business Cycle Index

Please note that this tool has moved to this new location. Please update any saved links or bookmarks.

August 2018 (data as of 7/31/2018)

Updated monthly, our forecasts are designed to anticipate changes before they occur and to help you extract meaning from the noise.

Current reading and trend

July employment report: Snoozer

The July employment report was relatively calm and does not change our Federal Reserve monetary policy or U.S. economic growth views. Although nonfarm payrolls growth came in below consensus, it was in line with our forward 12-month outlook and healthy enough to gradually continue to lower the unemployment rate. Wage growth is gradually rising.

 As a result, we expect the Federal Reserve to proceed with its next round of tightening in September.

 In terms of U.S. GDP growth, we expect 2.75% growth in 2018, given the fiscal stimulus package and strong economic growth in the first half of the year. In 2019, we expect 2.1% growth as we incorporate the possibility of a recession in late-2019. Indeed, the BCI model is currently in “caution mode” in the 12-month and 18-month horizon, suggesting continued monitoring of the data but no specific action. Risk of a U.S. recession is brewing at longer time horizons, though. 

 

Exhibit 1: Business Cycle Index

Click and drag the plot area to zoom in. Hold shift key to pan.

 
Past data
Forecast data
Periods of recession

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.

Exhibit 2: Employment Forecast

Click and drag the plot area to zoom in. Hold shift key to pan.

 
Past data
Forecast data

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.

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.
Download a copy of the report (PDF)
Site preferences