David Kelley of the Federal Reserve Bank of Chicago –
Indexes that combine several macroeconomic measures have historically done better than other indicators at signaling recessions up to one year in advance.
The results of this article show that at horizons roughly one year ahead and longer, the long-term Treasury yield spread has historically been the most accurate available “predictor” of recessions. That said, leading indexes have been better than individual leading indicators or financial data at signaling recessions in the near term. The indexes constructed here have also performed well as recession predictors in the near term because they are also effectively leading indexes that combine the information in the inputs to provide a more accurate measurement of coming economic activity.
