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Preliminary Long Leading Forecast For 2019: Recession Watch Beginning Q4

New Deal Democrat profile picture
New Deal Democrat


  • Long leading indicators tend to turn one year or more before the economy as a whole.
  • This article updates the forecast from these indicators for the second half of 2019.
  • A plurality of the indicators turned negative as of Q4 2018, warranting a “Recession Watch” beginning Q4 2019.

Introduction: What Are The Long Leading Indicators?

I have several systems for forecasting the economy. One is the high-frequency "weekly indicators," which as the name implies is updated weekly, and thus very timely. A second relies on monthly and quarterly data which has been extensively vetted in the past as having a sustained record of turning one year more before the economy as a whole.

For the short term, up to about six months out, the Index of Leading Indicators is a perfectly adequate tool with the inconvenient habit of being right more often than most highly paid Wall Street forecasters. To forecast the period over 6 months out, I turn to long leading indicators.

A "long leading indicator" is an economic metric that reliably turns a year or more before the onset of a recession.

Geoffrey Moore, who for decades published the Index of Leading Indicators and in 1993 wrote Leading Economic Indicators: New Approaches and Forecasting Records, identified 4:

  • housing permits
  • corporate bond yields
  • real money supply
  • corporate profits adjusted by unit labor costs

A variation of the above is Paul Kasriel's "foolproof recession indicator," which combines real money supply with the yield curve, i.e., the difference in the interest rate between short- and long-term treasury bonds. This turns negative a year or more before the next recession about half of the time.

Another long leading indicator has been described by UCLA Prof. Edward E. Leamer who wrote that "Housing IS the Business Cycle." In that article, he identified real residential investments as a share of GDP as an indicator that typically turns at least 5 quarters before the onset of a recession.

Several other series appear to have merit as long leading indicators as well. Real retail sales in several forms also have value as a long

This article was written by

New Deal Democrat profile picture
New Deal democrat As a professional who started an individual investor for almost 30 yeas ago, I quickly focused on economic cycles and the order in which they typically proceed. I have been writing about the economy for nearly 15 of those years, developing several alternate systems that include mid-cycle, long leading, short leading, coincident, lagging and long lagging indicators. I also focus particularly on their effects on average working and middle class Americans.

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