Leading Economic Indexes for New York State and New Jersey

espite the unusual length of the current expansion, few economists are ready to repudiate the business cycle. In particular, imbalances in the U.S. economy may develop rather quickly and result in either a slowdown or actual contraction in economic activity. The pattern of recurrent transitions between periods of economic expansion and contraction is of practical interest to consumers, businesses, and the government. In advance of a likely contraction, households may want to defer spending, businesses may seek to adjust product lines, and policymakers may need time to change plans and budgets. Moreover, in the midst of a lengthy contraction, retailers would like advance notice of an upturn in order to increase inventories before demand revives. The empirical regularities that characterize the U.S. business cycle have been the subject of considerable economic research. Arthur Burns and Wesley Mitchell are among the pioneers who provided a systematic study of these features. An outcome of their research was the identification of coincident and leading indicators of economic activity. These indicators provide the basis for the development of coincident and leading indexes— composite measures intended to gauge the current level of economic activity and predict its future course. Macroeconomists, however, have expressed concern about the methodology used to construct the indexes. Because the