Geoffrey H. Moore

Sequential Signals of Recession and Recovery

This paper describes a sequential procedure for identifying the beginning and ending dates of business cycle recessions as promptly and accurately as practicable. Its origin lies in a study in progress for the Economic Development Administration (EDA), U.S. Department of Commerce, which deals with the problem of designing and testing an efficient trigger formula for public works expenditures with the aid of a system of cyclical indicators. However, the proposed approach can be applied much more broadly to any temporary countercyclical policy program on the national level. Federal policy programs of job creation through public works or public service employment have been repeatedly called countercyclical without in fact being so. Most such programs came into effect much too late to counter the cyclical Early and confirming signals of business cycle peaks and troughs are produced sequentially on a current basis by a system of monitoring smoothed rates of change in the composite indexes of leading and coincident indicators. Evidence is offered that the system would have identified each of the peaks and troughs of U.S. business cycles since 1949 without undue delays and false alarms. Countercyclical policies activated and deactivated by such signals would have desirable timing properties.

Leading Indicators for the Service Sector

Since the service sector currently accounts for a large and growing share of U.S. economic activity, we have undertaken to develop indicators that throw light on its current status and future prospects. A composite coincident index of aggregate economic activity in the service sector is constructed, and a growth-cycle chronology is identified based on growth rates in this index and in its components. Then several macroeconomic leading indicators of service are identified, and from them a composite leading index is constructed. The growth rate in this index is found to give advance warnings of major swings in the growth of the service sector.

Forecasting Short-Term Economic Change

Abstract Economic statisticians do not enjoy an untarnished reputation for accurate forecasting. We have managed, over the years, to come up with some memorable failures. While we have also had our share of successes, they are not as well remembered nor as numerous as we should like. Recently, however, we have begun to pay more attention to the record, and a substantial body of evidence on forecasting performance has accumulated. In this paper I propose to review this record, try to arrive at a balanced appraisal, and offer some suggestions for improvement.

Inflation Cycles and Metals Prices

A leading index of inflation, developed and published monthly by the Center for International Business Cycle Research at Columbia University, has been designed to anticipate swings in broad measures of inflation such as the consumer price index. It generates signals indicating when the rate of inflation is likely to move up or down. Since metals prices are sensitive to the same types of economic factors that influence the overall inflation rate, we have examined the behavior of metals prices during intervals marked off by the signal dates. Between 1949 and 1986 the producer price index for metals and metal products moved up at an average annual rate of 6.7% when the leading index signaled an upswing, compared to a 1.7% rate during the remaining intervals. Aluminum scrap prices rose at a 15% average rate during the upswing signals but declined at an 11% rate otherwise. Copper scrap and zinc prices behaved similarly. The leading index of inflation appears to be a promising tool for forecasting short-run tre...

Using economic indicators to reduce risk in stock market investments

Abstract This paper shows how the risk of price declines in stock market investments can be reduced by using a sequential signal system to determine when to buy or sell. The signals are based on growth rates in long-leading indexes and in broad stock price indexes. Tests of the method during the past 20 years or more are shown for Australia, France, Germany, Japan, the UK and the USA. In some instances the reduction in risk (measured in terms of volatility of rates of return) is achieved at the cost of a lower average rate of return, but in other cases the average rate of return may be significantly higher than that obtained by a simple buy-and-hold strategy.

Forecasting Recessions Under the Gramm-Rudman-Hollings Law

The targeted deficit reductions of the Gramm-Rudman-Hollings (GRH) law are to be temporarily suspended in case of an official determination that real economic growth either (a) has been less than one percent in the two most recent reported quarters, or (b) is projected to be less than zero in any two consecutive quarters out the next six. This amounts to a particular definition of recession. But business cycles are best identified by the consensus of movements in the principal economic aggregates. Not all recessions are associated with real GNP declining or growing less than 1% for two successive quarters. Also, GNP estimates are subject to long sequences of revisions that are often large. We show that, for these reasons, conditioning a suspension of deficit cuts upon specific changes in preliminary data for real GNP involves very long lags in recognizing recessions. The recessions would be largely over before they were identified. We also show that forecasts of real GNP, based on the consensus among groups of professional forecasters, can reduce these lags considerably. This is so despite the fact that early and accurate predictions of business cycle peaks are rare, and false warnings occur.

Diffusion Indexes: A Comment

In the preceding issue of The American Statistician Arthur Broida analyzes some of the characteristics of diffusion indexes, especially their relation to rates of change in economic aggregates, and raises some questions concerning their potential value for business forecasting. Coincidentally an analysis of the latter problem by Milton Lipton appeared in The Business Record (June 1955) of the National Industrial Conference Board. These contributions prompt me to make some observations.

Financial market forecasts and rates of return based on leading index signals

Abstract This report describes and analyzes a practical system which will assist financial analysts and portfolio managers to maximize the annual rate of return in their asset-allocation program when choosing between stocks, short-term bills and long-term bonds. The level and stability of the total rates of return (from capital gain or loss and dividends or interest) are compared for various investment strategies. Our objective is achieved by developing, with the aid of new long-leading indexes, a method of forecasting the beginning and end of major bull markets in stock prices. During bear-market periods the choice between short-term bills and long-term bonds is governed by signals from a leading index of inflation. The paper reports the findings for Australia, Japan, the United Kingdom, the United States and West Germany.

Forecasting Foreign Trade with Leading Indicators

When the National Bureau of Economic Research began the International Economic Indicator project in 1973 we had two initial objectives. The first was to test the feasibility of employing traditional NBER methods to identify growth cycles in a number of market-oriented economies. The second objective was to see whether the Ieading, roughly coincident, and lagging indicators, which had proved reliable in analyzing business cycles in the United States, would prove equally useful in analyzing growth cycles in the United States and abroad. Our paper at the 1975 CIRE.T meetings in Stockholm, as well as other reports, demonstrated that the NBER indicators can be adapted to both these purposes, and we are now engaged in developing a system for monitoring international instability along these lines. In this endeavor we are cooperating with the OECD in establishing a current data bank which we trust will prove helpful for many purposes in all the countries that ultimately can be included.

1973: Why Productivity is Important

In recent months productivity has almost become a household word in view of the wider understanding that (1) long-term growth in productivity is a key to greater real income, and (2) productivity gains enhance the prospect for containing inflation. What are the facts underlying these propositions?