            Updating the Composite Indexes

The procedure for updating the composite indexes has four distinct steps.

In the notation below, the "t" and "t-1" subscripts refer to the current and prior month, respectively, and the "x" and "m" subscripts refer to a particular component of the index

Step 1 - Month-to-month changes are computed for each component.

If the component X is in percent change form or an interest rate, simple arithmetic differences are calculated: xt=Xt-Xt-1. If the component is not in percent change form, a symmetric alternative to the conventional percent change formula is used: xt=200*(Xt-Xt-1)/(Xt+Xt-1). Details on symmetric percent change formula.

An example for Step 1 for BCI series 1 of the U.S. Leading Index.

 March 98 April 98 Average Weekly Hours, Mfg. 41.8 41.4 Symmetric percent change -0.96

Step 2 - The month-to-month changes are adjusted using standardization factors that equalize the volatility of each component.

An example for Step 2 for BCI series 1 of the U.S. Leading Index.

 March 98 April 98 Average Weekly Hours, Mfg. 41.8 41.4 Symmetric percent change -0.96 Standardized (-0.96*.189) -0.18

TABLE with symmetric percent changes and standardized changes of all ten components of the U.S. Leading Index for the period January 1998 to July 1998.

Step 3 - With the previous month's index level, use the sum of the individual contributions as a symmetric  percent change to compute the updated level of the index.

March's level of 105.2 *(200+(0.06))/(200-(0.06)) = April's level of 105.30

The above formula is consistent with (i.e., inverts) the symmetric percent change formula in Step 1.

All index levels are rounded to one decimal.  Thus, March = 105.2, and April = 105.3

2001 Revisions

Prior to 2001, an additional adjustment was made to equalize the volatility of the composite indexes.  For the U.S. leading and lagging indexes, each monthly sum (it) was multiplied by an index standardization factor (f) that equalizes the volatility these indexes relative to the coincident index.  This factor is the ratio of the standard deviation of the percent changes for the coincident index (vcoin) to the standard deviation of the unadjusted  percent changes for the particular composite index (flead = vcoin/vlead, flag = vcoin/vlag).  The Conference Board decided to remove this step as it was proven not have any meaningful difference to the composite indexes' analytical value.

The leading, coincident and lagging indicators that are not available at the time of publication are estimated using statistical imputation.  An autoregressive model is used to estimate each component.  The resulting indexes are constructed using real and estimated data, and will be revised as the data unavailable at the time of publication become available.  Such revisions are part of the monthly data revisions, now a regular part of the U.S. and global business cycle indicators program.  The main advantage of this procedure is to utilize available data sooner.  Empirical research by The Conference Board suggests there are real gains in adopting this procedure to make all the indicator series as up-to-date as possible.            