C. Elton Hinshaw

Rendigs Fels

English

Research Papers in Economics

This PDF is a selection from an out-of-print volume from the National
Bureau of Economic Research
Volume Title: Forecasting and Recognizing Business Cycle Turning Points
Volume Author/Editor: Fels, Rendigs and C. Elton Hinshaw
Volume Publisher: UMI
Volume ISBN: 0-870-14479-0
Volume URL: http://www.nber.org/books/fels68-1
Publication Date: 1968
Chapter Title: PART 1 Conclusions
Chapter Author: Rendigs Fels, C. Elton Hinshaw
Chapter URL: http://www.nber.org/chapters/c1092
Chapter pages in book: (p. 47 - 48)9
Conclusions
1. There is a pattern in reports on the business outlook in the vicinity
of cyclical peaks and troughs. As time goes by, analysts become in-
creasingly aware of first the possibility, then the probability, and finally
the certainty of a turning point. The beginning of this process is almost
impossible to date. Forecasters are always aware of the possibility of a
turn. Not long before it bccurs, their expectation starts to strengthen and
to become more definite. The end of the process may come sooner
than six months after the turn, as in 1961. On two occasions (the 1949
trough and the 1960 peak) the end of the process cannot be identified.
For the majority of forecasters, the process is normally completed in
six months.
2. Since World War II, recognition of troughs has been faster than
recognition of peaks. Despite the forebodings of an occasional prophet
of doom, forecasters have generally expected each contraction to be
short and mild. Although they were not able to pinpoint when the
trough would come, they were basically right.
3. Geoffrey Moore wrote in 1950, "If the user of statistical indicators
could do no better than recognize contemporaneously the turns in gen-
eral economic activity denoted by our reference dates, he would have a
better record than most of his fellows."Thisstudy tends to confirm
Moore's assertion. Out of seventy-three scores for forecasts made in
the month of NBER reference peaks and troughs, there were forty-nine
scores of zero for accuracy of dating (67 per cent) and forty scores of
less than 50 for degree of certainty (55percent).
4. Evidence in this study that users of the NBER indicators approach
actually have done better than their fellows is weak. The evidence sug-
Statisticalindicators of Cyclical Revivals and Recessions, New York, NBER,
1950, reprinted in Business Cycle indicators, Vol. I, pp. 257—258.48 Recognition Patterns of Business Analysts
gests,if anything, that relative to other methods the indicators ap-
proach may be more sensitive at peaks and less sensitive at troughs. The
two analysts covered in this study who relied heavily on the indicators
did better than the average of the others in 1957 and 1960 but worse
in 1958 and 1961. But, since all analysts use a mixture of methods,
this finding is highly tentative. Furthermore, the samples are small and
may be unrepresentative.
5. Forecasts have sometimes gone astray as a result of faulty statis-
tical estimates, as in 1947 (industrial production) and 1957 (inventory
investment).
6. Business analysts need to (a) state their predictions more pre-
cisely and (b) define their subjective estimates of the likelihood of dif-
ferent possibilities. Though the ambiguous language common in reports
on business cycles results partly from the nature of the subject, it is
associated also with the practice of predicting a single outcome. Under
conditions of uncertainty, the single prediction gets hedged, qualified,
and fuzzed up. Proper handling of uncertainty requires defining different
possibilities and evaluating their likelihood.
Notes to Table A
SOURCES: Garfield V. Cox,AnAppraisal of American Business Forecasts, rev. ed.
(Chicago: The University of Chicago Press, 1930): and Geoffrey H. Moore. For expla-
nationof method, see text, Chapter 3.
aOneservice did not forecast during 1919 trough and 1920 peak; another service be-
gan forecasting three months after the 1919 trough; none of the services was available
more than four months before the 1919 trough.
Twopeaks only for —6, +4, +5, and +6 months; three peaks for —5, —4, —3, —2, and
+3 months.
Onetrough only for +5 and +6 months; two troughs for —6 and +4 months; three
troughs for —5, —4, and +3 months.
ciDetailneed not add to total because of rounding.
Scores given represent sixteenths. Possible scores range from —1 to +1 (i.e., from
—16 to +16 in terms of numbers shown here).

Forecasting and Recognizing Business Cycle Turning Points

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