The government on Friday will issue a new version of its much-maligned chief economic forecasting gauge, but skeptical private analysts expect little improvement in the monthly report’s track record.
The index of leading economic indicators--sometimes derided by its critics as the index of misleading indicators--is designed to foretell future economic activity by evaluating forward-pointing business statistics.
Government policy makers and private investors watch the index closely for indications of strength or weakness in the U.S. economy as much as six months in the future.
Using data information to 1948, the composite index has correctly predicted all eight recessions by dropping for at least three months in a row, but it also forecast four recessions that never materialized.
January’s report, to be issued Friday, will drop two of 11 components from the index, revise two others and feature two new indicators of economic activity.
Larry Moran, a spokesman for the government’s Bureau of Economic Analysis, said today that the changes will make the index less prone to after-the-fact revision, less apt to make false predictions of future downturns and more precise at predicting when downturns will occur.
“This index is so good that it has predicted 12 of the last eight recessions,” he quipped. “The new index will be less inclined to give us false signals. We hope it will be better at telling us when they (downturns) are going to occur.”