What the latest data show: Nation's GDP expected to grow in 4th quarter
— -- The USA TODAY/IHS Global Insight economic outlook index predicts GDP growth for October through December, the first increase since September 2008. Helping fuel the growth was improvement in financial indicators, such as the stock market, and increases in building permits. The rate of decline in the number of hours worked has also stabilized.
The index predicts future real GDP growth (gross domestic product, adjusted for inflation) based on 11 leading economic and financial indicators. The decline in real GDP, at a six-month annualized rate, slowed from -5.9% in March to -2.8% in July. It's expected to reach the break-even point in October and increase progressively through the end of the year. Recent gains in the index, though small, have been persistent, which is a good sign.
Seven of the eleven leading indicators in the Economic Outlook Index were positive contributors in July: building permits, non-defense capital goods orders, stock prices, ISM export orders, the interest rate yield curve, light vehicle sales and the real federal funds rate. Three indicators had a negative effect on the index, including the corporate bond spread, a decline in the average growth rate of the real money supply and higher crude oil prices. One indicator was neutral: the decline in the number of hours worked has stabilized.
About the USA TODAY/IHS Global Insight Economic Outlook Index
USA TODAY and IHS Global Insight, a top-rated economic analysis and consulting firm, created this index to help readers track the economic recovery.
The index predicts future gross domestic product (GDP) growth. Real GDP is the value of goods and services produced in the U.S., adjusted for inflation. It is a key measure of economic activity and an important factor in determining whether the economy is in a recession.
To forecast real GDP growth, IHS Global Insight designed a model that produces a weighted composite of 11 leading indicators. The list includes a mix of economic and financial "forward-looking" indicators that have a strong correlation with future economic activity. As a group they accurately forecast economic growth and are sensitive to signs of stress in the economy.
For each indicator, the model compares a moving average of the latest three months to a moving average over the past year. This enhances their predictive power in forecasting real GDP growth.
The interactive graphic
This interactive graphic charts the forecast values for real GDP growth. For historical context, we've included actual values back to 2000.
Values for each of the 11 leading indicators are also charted. Most of the values reflect two- or three-month moving averages to smooth monthly volatility. All values are actual (that is, not forecasts) except for the most recent figures for light vehicle sales and the corporate bond spread. For these specific indicators, IHS Global Insight relies on its in-house expertise to forecast the latest month of data needed for its model.
How this index differs from others
The USA TODAY/IHS Global Insight Economic Outlook Index differs from the Conference Board's index of leading indicators by including only "forward-looking" indicators that have a proven ability to predict future economic activity at least several months in the future; that is, indicators of current activity are excluded. In addition, the weight of each indicator depends on the predictive power of that indicator, as opposed to the equal weights applied by the Conference Board and the Economic Cycle Research Institute. The USA TODAY/IHS Global Insight Economic Outlook Index concentrates information from the 11 "forward-looking" indicators into one composite indicator as opposed to the Economic Cycle Research Institute's suite of leading indicators with different components and frequencies.
This interactive graphic was updated July 29, 2009. It will be updated each month.