No Recession Is Signaled By iM's Business Cycle Index: Update October 13, 2016

| About: ProShares Inflation (RINF)

Knowing when the U.S. economy is heading for recession is paramount for successful investment decisions. Our weekly Business Cycle Index (BCI) would have provided early, reliable warnings for the past seven recessions.

The BCI at 212.6 is up from last week, and is at its previous high for this Business Cycle as indicated by the BCIp at 100.0. However, the 6-month smoothed annualized growth BCIg at 16.4 is down from last week's 16.5.

Figure 1 plots BCIp, BCI, BCIg and the S&P 500 together with the thresholds (red lines) that need to be crossed to be able to call a recession.

Click to enlarge

The BCI was designed for a timely signal before the begin of a recession, and could be used as a sell signal for ETFs that track the markets like (NYSEARCA:SPY), (NYSEARCA:IWV) or (NYSEARCA:VTI) etc, and switch into treasury bond ETFs like (NYSEARCA:IEF), (NYSEARCA:TIP) or (NYSEARCA:BND) etc. (see our article.)

The BCI uses the below listed economic data, and combining the components for the index in "real time", i.e. the data is only incorporated into the index at its publication date.

  1. 10-year treasury yield (daily)

  2. Three-month treasury bill yield (daily)

  3. S&P 500 (daily)

  4. Continues Claims Seasonally Adjusted (weekly)

  5. All Employees: Total Private Industries (monthly)

  6. New houses for sale (monthly)

  7. New houses sold (monthly)

The 6-month smoothed annualized growth rate of series is a well-established method to extract an indicator from the series. We use this method to obtain BCIg, i.e. the calculated growth rate with 6.0 added to it, which generates, on past performance, an average 11-week leading recession signal when BCIg falls below zero. Further, the index BCI retreats from its cyclic peak prior to a recession in a well-defined manner allowing the extraction of the alternate indicator BCIp (and its variant BCIw) from which, on average, 20-week leading recession signal is generated when BCIp falls below 25. A more detailed explanation/description can be found here and weekly updates are sent by email to subscribers of iMarketSignals (no paid membership is required). Also, the historic values can be downloaded from iMarketSignals as an MS excel sheet.

Figure 2 plots the history of BCI, BCIg, and the LOG (S&P 500) since July 1967, and Figure 3 plots the history of BCIp, i.e. 46 years of history, which include seven recessions, each of which the BCIg and BCIp managed to indicate timely, the weeks lead to a recessions are indicated on the plots.

Click to enlarge

Click to enlarge

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.