Business Cycle and Financial Conditions Indicators: Investor Reference

What do Business Cycle and Financial Conditions Indicators have in common?

Unlike single-series indicators, these are composites or model outputs. Each takes many underlying series, such as payrolls, production, jobless claims, interest rate spreads and volatility, and compresses them into one number. They are used to ask broad questions: is the economy expanding, is it near a turning point, and are funding markets easing or tightening.

The Conference Board's three indexes divide the cycle by timing. The Leading Economic Index combines ten indicators that tend to turn first, the Coincident Economic Index uses four measures of current activity, and the Lagging Economic Index uses seven indicators that tend to change after the cycle has turned. Higher-frequency activity gauges include the monthly CFNAI, the daily ADS Index and the weekly Weekly Economic Index.

Several series are aimed at recession risk or current growth. The Sahm Rule compares the three-month average unemployment rate with its lowest three-month average over the prior twelve months and triggers at a rise of 0.50 percentage points. The New York Fed converts the spread between 10-year and 3-month Treasury yields into a probability of recession twelve months ahead. GDPNow is a running nowcast of the current quarter's real GDP growth.

The financial conditions and stress series ask whether finance is easy or hard. The Chicago Fed's NFCI and Adjusted NFCI are weekly, and the adjusted version removes the part explained by economic activity and inflation. The Kansas City, St. Louis and OFR indexes measure stress from market variables such as spreads and volatility, at monthly, weekly and daily frequency. In each, zero marks average, and positive values mean tighter conditions or more stress.

How do you choose among Business Cycle and Financial Conditions Indicators?

• For the direction of the cycle, read the three Conference Board indexes together: leading for possible turning points, coincident for the current state and lagging for confirmation after the fact.
• For a faster read on activity, use the daily ADS Index or the Weekly Economic Index. They update between monthly releases but are model outputs that can be revised as data arrive. The monthly CFNAI is slower and steadier.
• For current-quarter GDP growth, use GDPNow, and remember that it is a model-based nowcast that moves with each major data release and is not an official forecast.
• For recession risk, note that each signal has a narrow base. The Sahm Rule uses only the unemployment rate and the yield curve probability uses only one Treasury spread.
• For financing conditions, use the NFCI for the broad weekly level and the Adjusted NFCI to see whether conditions are tighter or looser than economic activity alone would explain.
• For market stress, the OFR index (daily, global), the St. Louis Fed index (weekly) and the Kansas City index (monthly) use different inputs, so compare each with its own history.

Business Cycle and Financial Conditions Indicators at a glance

Indicator	Geography	What it measures	Published by	Frequency
OFR Financial Stress Index	Global	stress in global financial markets across credit, equity valuation, funding, safe assets and volatility	Office of Financial Research	Daily
Adjusted NFCI	United States	U.S. financial conditions in money, debt and equity markets, net of the economic cycle	Federal Reserve Bank of Chicago	Weekly
ADS Index	United States	business cycle and financial conditions	Federal Reserve Bank of Philadelphia	Daily
CFNAI	United States	overall U.S. economic activity and inflationary pressure	Federal Reserve Bank of Chicago	Monthly
Coincident Economic Index	United States	current U.S. economic activity from payrolls, income, sales and production	The Conference Board	Monthly
GDPNow	United States	a running nowcast of current-quarter U.S. real GDP growth	Federal Reserve Bank of Atlanta	Irregular
Kansas City Financial Stress Index	United States	the level of stress in the U.S. financial system	Federal Reserve Bank of Kansas City	Monthly
Lagging Economic Index	United States	business cycle conditions that confirm turning points after they have occurred	The Conference Board	Monthly
Leading Economic Index	United States	the combined signal of ten leading indicators of the U.S. business cycle	The Conference Board	Monthly
NFCI	United States	U.S. financial conditions across money, debt and equity markets and the banking system	Federal Reserve Bank of Chicago	Weekly
Sahm Rule	United States	recession risk signaled by a rising unemployment rate	Federal Reserve Bank of St. Louis	Monthly
St. Louis Fed Financial Stress Index	United States	financial market stress	Federal Reserve Bank of St. Louis	Weekly
Weekly Economic Index	United States	real economic activity at a weekly frequency	Federal Reserve Bank of Dallas	Weekly
Yield Curve Recession Probability	United States	the probability of a U.S. recession over the next twelve months	Federal Reserve Bank of New York	Monthly

14 indicator pages are listed. Each row comes from the same source file as the page it links, so the publisher and frequency here match that page.

What limits do Business Cycle and Financial Conditions Indicators share?

These indexes are statistical constructions, so their values depend on model choices, and several are revised when inputs are updated or the model is re-estimated, as with the ADS Index and the NFCI. Monthly composites use source data that are themselves revised and seasonally adjusted. Leading indicators have given false signals and their lead time varies from cycle to cycle, while coincident and lagging indexes confirm only after the fact. Recession rules rest on historical relationships that may not repeat, and a nowcast estimates a figure that has not yet been published.

Frequently Asked Questions

What is the difference between leading, coincident and lagging indexes?

They differ in timing relative to the business cycle. The Leading Economic Index combines indicators that tend to turn before the economy does, the Coincident index tracks current activity, and the Lagging index uses indicators that change after a turn. Lagging readings are used to confirm a turn, not to predict one.

How do financial conditions indexes differ from financial stress indexes?

The Chicago Fed's NFCI aggregates more than 100 measures of risk, credit and leverage to gauge how easy or tight financial conditions are. Stress indexes such as the OFR, St. Louis Fed and Kansas City Fed series are built from market variables like spreads and volatility and are meant to flag strain. All are centered on zero.

Is GDPNow an official forecast?

No. GDPNow is the Atlanta Fed's model-based running estimate of current-quarter real GDP growth, expressed as a seasonally adjusted annualized rate. It is not an official forecast from the Federal Reserve System, and it updates after major data releases as a nowcast of the figure the BEA will later publish.

How does the Sahm Rule work?

It takes the three-month moving average of the unemployment rate and subtracts the lowest three-month average from the previous twelve months. A rise of 0.50 percentage points or more triggers the rule. It uses only the unemployment rate, so it summarizes one labor market signal rather than the whole economy.

How often are these indicators published?

It varies. The ADS Index and OFR Financial Stress Index are daily. The NFCI, Adjusted NFCI, St. Louis Fed stress index and Weekly Economic Index are weekly. The Conference Board indexes, CFNAI, Kansas City stress index, Sahm Rule and yield curve probability are monthly, and GDPNow updates irregularly after data releases.