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Each month, one of our Research Reports articles is devoted to current business-cycle conditions. Each of these monthly discussions includes a full set of charts of AIER's primary leading, coincident and lagging statistical indicators. We also produce two charts that aggregate the movements of the 12 leading indicators. We often publish these two charts with the monthly report, however, space does not always permit them to be included. So, for our readers who would like to see these charts every month, we have them posted here.
AIER staff meets monthly to discuss and appraise each one of our 24 statistical indicators. These appraisals are based upon probabilities that are calculated each month. These probabilities help us determine whether a series is likely to be cyclically expanding or cyclically contracting. Using these probabilities each series is then appraised as either clearly expanding, probably expanding, cyclically indeterminate, probably contracting, or clearly contracting.
The percentage of leading indicators expanding is calculated by adding the number of leading indicators appraised as expanding or probably expanding cyclically, dividing that figure by the number of leading indicators for which a cyclical status is evident, and multiplying the result by 100. Series for which the cyclical status is indeterminate are disregarded. For example, if nine of the twelve primary leaders are clearly or probably expanding cyclically, one is clearly or probably contracting, and the cyclical statuses of two series are indeterminate, we divide nine by ten (total number of primary leaders for which the cyclical status is apparent), which equals 0.90. This number multiplied by 100 equals 90. Therefore, we would report that 90 percent of the primary leading indicators with an apparent cyclical trend are expanding.
As the percentage of leading indicators chart showsf, there were several periods where the series gave a false prediction of a recession. Although the procedure for calculating the percentage of leaders expanding is straightforward, it does not allow for any "shades of gray." Each series must be accorded a specific cyclical status each month and a series reaching a new high for the cycle has the same "weight" as one that has decreased for several months and is on the verge of an indeterminate status.
As a result, AIER developed an alternative measure of the primary leading indicators called the Cyclical Score. Although it too theoretically can fluctuate between 0 and 100, it differs from the percent expanding series in several respects. The cyclical score is a purely arithmetical calculation that does not reflect the judgments of AIER's staff in any way. Also, it is based on the current list of primary leaders each month. This means that the data for, say, August 1972, reflect all historical revisions and may include series that were not on the list of primary leaders then. Consequently, the historical record of the cyclical score may itself be revised whenever a series is revised or one series is dropped and another substituted. The percentage expanding series is, in contrast, a record of the monthly findings of AIER's staff based on the leading series then in use and then available.
As with the percentage expanding series, the cyclical score can range from 0 to 100. A score below 50 indicates that a recession is probable. We rely on the cyclical score primarily to supplement the percentage expanding series. For example, if the percentage of leaders appraised as expanding indicates that a recession is probable, but the cyclical score of the leaders does not, we would be somewhat hesitant in asserting that a recession is imminent. On the other hand, if both series were to decrease to less than 50, we would be somewhat more confident in offering such an appraisal.
The Primary Leading Indicators
- M1 Money Supply
- Yield Curve Index
- ISM Price Index
- New Orders for Consumer Goods
- New Orders for Core Capital Goods
- New Housing Permits
- Ratio of Manufacturing and Trade Sales to Inventories
- Vendor Performance, Slower Deliveries Diffusion Index
- Index of Common Stock Prices
- Average Workweek in Manufacturing
- Initial Claims for State Unemployment Insurance
- 3-Month Percent Change in Consumer Debt
The Primary Roughly Coincident Indicators
- Nonagricultural Employment
- Index of Industrial Production
- Personal Income less Transfer Payments
- Manufacturing and Trade Sales
- Civilian Employment as a Percentage of the Working-Age Population
- Gross Domestic Product
The Primary Lagging Indicators
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Research 
American Institute for Economic Research (AIER) conducts independent, scientific, economic research to educate individuals, thereby advancing their personal interests and those of the Nation. 
