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Purchasing and supply managers provide early clues on the direction of the US economy: An application of a new market-timing test

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  • Tsuchiya, Yoichi

Abstract

We evaluate the directional accuracy of Institute for Supply Management (ISM) indices in predicting the direction of the US economy direction; to do so, we make use of a method developed by Pesaran and Timmermann (2009). By illustrating an application of the new market-timing test and extending it to a joint evaluation of increase/decrease and acceleration/deceleration, we show that while the ISM indices are useful predictors of industrial production and employment with regard to monthly economic activity and to business cycle expansion/recession, they are not useful predictors of real gross domestic product or hours worked. Our findings suggest that the ISM indices broadly provide early qualitative information on the US economy. Our findings also suggest that the importance of the nonmanufacturing sector becomes clear when examining business cycles in the U.S.

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  • Tsuchiya, Yoichi, 2014. "Purchasing and supply managers provide early clues on the direction of the US economy: An application of a new market-timing test," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 599-618.
    • Handle: RePEc:eee:reveco:v:29:y:2014:i:c:p:599-618
    DOI: 10.1016/j.iref.2013.09.002
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    More about this item

    Keywords

    Directional analysis; Institute for Supply Management; Purchasing Managers' Index; Nonmanufacturing index; Survey data;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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