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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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    Cited by:

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    2. Hamid Baghestani & Bassam M. AbuAl-Foul, 2019. "Dynamics between Oil Prices and UAE Effective Exchange Rates: An Empirical Examination," Review of Economics & Finance, Better Advances Press, Canada, vol. 16, pages 89-103, May.
    3. Tsuchiya, Yoichi, 2016. "Do production managers predict turning points? A directional analysis," Economic Modelling, Elsevier, vol. 58(C), pages 1-8.
    4. Wagner, Stephan M. & Mizgier, Kamil J. & Papageorgiou, Stylianos, 2017. "Operational disruptions and business cycles," International Journal of Production Economics, Elsevier, vol. 183(PA), pages 66-78.
    5. Lekshmi Omana & Om Prakash Mall, 2015. "Forward looking surveys for tracking Indian economy: an evaluation," IFC Bulletins chapters, in: Bank for International Settlements (ed.), Indicators to support monetary and financial stability analysis: data sources and statistical methodologies, volume 39, Bank for International Settlements.
    6. Lan, Yueqin & Huang, Yong & Yan, Chao, 2021. "Investor sentiment and stock price: Empirical evidence from Chinese SEOs," Economic Modelling, Elsevier, vol. 94(C), pages 703-714.
    7. Herwadkar, Snehal S. & Ghosh, Saurabh, 2020. "Is PMI a good leading indicator of industrial production?: Evidence from India," MPRA Paper 97924, University Library of Munich, Germany.

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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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