The June update of the USA TODAY/IHS Global Insight Economic Outlook Index continues to show signs that the economy will start to recover mildly around October.
The decline in real GDP growth accelerated from minus 3.5%, at a six-month annualized growth rate, in December 2008 to minus 6% in March. It slowed to a more moderate minus 4.3% in June, and is expected to reach the break-even point around October-November. Recent gains in the index, though small, have been consistent, which is a good sign.
Seven of the eleven leading indicators in the Economic Outlook Index were positive contributors in June: building permits, non-defense capital goods orders, stock prices, ISM export orders, the interest rate yield curve, light vehicle sales, and the corporate bond spread. Four indicators had a negative effect on the index, including slightly fewer hours worked, a decline in the average growth rate of real money supply, a modestly tighter real federal funds rate and higher crude oil prices.
About the USA TODAY/IHS Global Insight Economic Outlook Index
USA TODAY and IHS Global Insight, a top-rated economic analysis and consulting firm, created this index to help readers track the economic recovery.
The index predicts future gross domestic product (GDP) growth. Real GDP is the value of goods and services produced in the U.S., adjusted for inflation. It is a key measure of economic activity and an important factor in determining whether the economy is in a recession.
To forecast real GDP growth, IHS Global Insight designed a model that produces a weighted composite of 11 leading indicators. The list includes a mix of economic and financial “forward-looking” indicators that have a strong correlation with future economic activity. As a group they accurately forecast economic growth and are sensitive to signs of stress in the economy.
For each indicator, the model compares a moving average of the latest three months to a moving average over the past year. This enhances their predictive power in forecasting real GDP growth.
This interactive graphic charts the forecasted values for real GDP growth. For historical context, we’ve included actual values back to 2000.
Values for each of the 11 leading indicators are also charted. Most of the values reflect two- or three-month moving averages to smooth monthly volatility. All values are actual (that is, not forecasts) except for the most recent figures for light vehicle sales and the corporate bond spread. For these specific indicators, IHS Global Insight relies on its in-house expertise to forecast the latest month of data needed for their model.
How this index differs from others
The USA TODAY/IHS Global Insight Economic Outlook Index differs from the Conference Board’s index of leading indicators by including only “forward-looking” indicators that have a proven ability to predict future economic activity at least several months in the future; that is, indicators of current activity are excluded. In addition, the weight of each indicator depends on the predictive power of that indicator, as opposed to the equal weights applied by the Conference Board and the Economic Cycle Research Institute. The USA TODAY/IHS Global Insight Economic Outlook Index concentrates information from the 11 “forward-looking” indicators into one composite indicator as opposed to the Economic Cycle Research Institute’s suite of leading indicators with different components and frequencies.
This interactive graphic was updated June 24, 2009. It will be updated each month.
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