A New Method of Presenting a General Business Index and Forecast

Abstract

The purpose of this paper is briefly to describe the construction of a general index and forecast of activity in the United States which embodies a number of features of interest to statisticians and executives. Many of the indices measuring changes in activity developed in recent years have been particularly concerned with a portrayal of the cycle. They have pictured the deviations of commercial and industrial activity or commodity prices from base lines and in percentage or standard-deviation units. There are believed to be distinct advantages, however, in combining in a index both the cyclical variations and the element of growth trend, which (with the seasonal pattern) forms the basis of the normal from which deviations are measured. It is also desired to show clearly the deviations from normal in percentage units, which are easily understood by the man using such an index for planning and budgeting purposes. An index of the type to be described is particularly useful in analyzing conditions in local areas which have diverse trends and in comparing these with each other and with the national picture. No single series of data is believed to be as satisfactory for use in constructing a general index as a combination of several selected series. The series used, however, should preferably reflect in a comprehensive manner changes in the nation's buying-power, exclusive of the security markets. This means buying-power exerted by consumers of finished goods and services, of industries, of distributors, builders, farmers, miners, railways, etc. In order to represent this, three series of monthly data have been selected-bank clearings in all cities reporting to the Commercial and Financial Chronicle, excluding New York; bank debits in 140 cities outside of New York; and the total car loadings of freight as reported by the American Railway Association, reduced to monthly form. Check transactions have the advantage, for the purpose in hand, of being actual and not artificially calculated data and also of being very comprehensive and automatically weighted. While doubtless the clearings and debits even outside the great speculative center contain some elements not strictly to be interpreted as business activity, nevertheless they do measure the flow of purchases and sales which