No Recession Is Signaled By iM’s Business Cycle Index: Update August 03
iMarket Signals | Aug 03, 2017 09:06AM ET
Knowing when the U.S. Economy is heading for recession is paramount for successful investment decisions. Our weekly Business Cycle Index (BCI) would have provided early reliably warnings for the past seven recessions.
The BCI at 226.1 is above last week’s 225.7, and for this Business Cycle is at a new high indicated by the BCIp at 100. However, the 6-month smoothed annualized growth BCIg at 14.6 is above last week’s 14.5.
No recession is signaled.
Figure 1 plots BCIp, BCI, BCIg and the S&P500 together with the thresholds (red lines) that need to be crossed to be able to call a recession.
The BCI was designed for a timely signal before the begin of a recession, and could be used as a sell signal for ETFs that track the markets like SPY), IWV or VTI etc, and switch into treasury bond ETFs like IEF, TIP or BND etc. (see our article .)
The BCI uses the below listed economic data, and combining the components for the index in “real time”, i.e. the data is only incorporated into the index at its publication date.
- 10-year treasury yield (daily)
- 3-month treasury bill yield (daily)
- S&P500 (daily)
- Continues Claims Seasonally Adjusted (weekly)
- All Employees: Total Private Industries (monthly)
- New houses for sale (monthly)
- New houses sold (monthly)
The 6-month smoothed annualized growth rate of series is a well-established method to extract an indicator from the series. We use this method to obtain BCIg, i.e. the calculated growth rate with 6.0 added to it, which generates, on past performance, an average 11 week leading recession signal when BCIg falls below zero. Further, the index BCI retreats from its cyclic peak prior to a recession in a well-defined manner allowing the extraction of the alternate indicator BCIp (and its variant BCIw) from which, on average, 20 week leading recession signal is generated when BCIp falls below 25. A more detailed explanation/description iMarketSignals (no paid membership is required). Also, the historic values can be downloaded from iMarketSignals as an MS excel sheet.
Figure 2 plots the history of BCI, BCIg, and the LOG(S&P500) since July 1967, and Figure 3 plots the history of BCIp, i.e 46 years of history which include seven recessions, each which the BCIg and BCIp managed to indicate timely, the weeks lead to a recessions are indicated on the plots.
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.