kim226

An economic forecaster points to declining stock prices, money supply, and building permits, along with improving vendor performance and a narrowing of the spread between 10-year Treasuries and the federal funds rate in order to justify her economic viewpoint. She is most likely:

A) stating that the economy is currently at a trough.

B) predicting a recession.

C) expecting an economic recovery.

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All the indicators she cites are leading indicators that show deteriorating economic conditions, consistent with a forecast of recession.

kim226

Lily Olsen, CFA, obtains the following monthly economic data for the United States (at annual rates, except duration of unemployment):

	April	May	June
M2 money supply	+4%	+8%	−6%
Average duration of unemployment	35 weeks	32 weeks	30 weeks
Payroll employment	+7%	+4%	0%
Manufacturers' new orders – capital goods	+4%	−2%	−7%
Industrial production	+6%	+3%	+1%
Average weekly hours	+1%	−3%	−5%
Manufacturers' new orders – consumer	+3%	+1%	−1%

These indicators are most consistent with economic activity that is currently:

A) at a peak.

B) at a trough.

C) in recession.

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Manufacturers’ orders and M2 are leading indicators, suggesting that a recession is coming. Duration of unemployment is a lagging indicator, suggesting that an expansion has occurred. Payroll employment, industrial production, and weekly hours are coincident indicators. The fact that employment growth and industrial production have slowed dramatically and weekly hours are already falling suggests that the economy has reached a peak and is beginning to contract. It would be premature to suggest that it is in recession, however, when production and employment growth are still positive.