On September 15th, Federal Reserve Chairman Bernanke responded to a question at the Brookings Institute with the statement From a technical perspective, the recession was very likely over. Looking at the Conference Boards Leading and Coincident Economic Indicators, I would agree. Due to strict copyright control, I cannot display them here, but you are allowed to download the press release here with the graphs to follow the analysis yourself.
The Conference Boards Composite Leading Indicator (LI) Index is used to signal changes in the business cycle. One or two data points are not a reliable sign of a change. Rules of thumb here are three or more months in a new direction, or four of seven months in a new direction, signal a turn.
Looking at the press release, we see that the LI index turn down in August 2007 and did not rise again over the next five months, at which time the start of current recession was dated (December 2007). Similarly, the LI index turned up in April of 2009 and has risen for the past five months, indicating the business cycle is changing from contraction to expansion.
Reinforcing this signal of change is the Conference Boards Coincident Indicator (CI) index. The CI index signals where in the business cycle the economy is currently. Looking at press release, we see that the CI peaked in the Oct-Nov 2007 period and then started a long downward trend. In July of 2009, the CI turned up and August was flat, giving a signal that the economy has entered a flat or relatively little or no growth (or decline) phase. For higher confidence, we will need a third data point that is not declining here.
Taken together, the LI and CI signal that the summer of 2009 is likely to be the trough of the current business cycle and the later part of 2009 is likely to be an expansion. Note that these indicators do not say anything about strength of the expansion, nor how long it is likely to last, but only that we are likely to experience six to nine months of growth in real gross domestic product (RGDP).
If you are interested in how the LI and CI have performed over previous business cycles, you can download the technical notes that accompany the press release. At the bottom of this pdf are charts for LI and CI that cover the last 50 years. The shaded vertical sections are recession periods.
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