|Q: How is the BaR Analysis Grid© useful?|
|A: The BaR is particularly useful because it not only tracks the trends of key economic indicators, but it also calculates a baseline that acts as a recession threshold. When most economic indicators move into the decline quadrant and toward, or below, the baseline, this signals that the economy is approaching a recession.
|Q: How do I read the BaR?|
|A: Click on the BaR Analysis Grid tab and scroll down to the How to Read the BaR section.
|Q: What is the mean of coordinates?|
|A: The most important point on the BaR is the MoC, the mean of coordinates, which is the average of all plotted points. It shows the overall condition of the economy. After a recession, the MoC will largely stay in the recovery quadrant. As the economy strengthens, the MoC will eventually reach the expansion quadrant and begin to move above the baseline, which is an approximate recession threshold. The economy is the strongest when the MoC moves upward and to the right.
However, it is not unusual for the MoC to move into the decline quadrant even when it has a general positive trend. This may happen briefly when the economy is expanding but the rate of growth is slowing, which is not uncommon during a business cycle.
However, when the MoC stays mostly in the decline quadrant and moves towards the baseline, this indicates the economy is slowing and may be moving towards a recession.
The graphic below illustrates how economic indicators with a positive trend line can vacillate between positive (green arrows) and negative (red arrows) rates of change. A postive rate of change would be when the rate of growth for an indicator goes from 3% to 6%. This rate of change would plot in the recovery or expansion qudarants. A negative rate of change would occur when the rate of growth from an indicator goes from 5% to 2%, or 2% to -1%. This rate of change would plot in the decline or contraction quadrants. Because indicators often see a positive rate of change during a month and a negative rate of change in the next month, the indicator will shift between the expansion and decline quadrants.
|Q: On the 12-month MoC chart on the home page, some months show an increase in the rate of change (RoC), but the % from the baseline decreases for that month. Shouldn't the RoC increase?|
|A: The baseline is calculate using the most recent month's data; whereas, the proportional RoC is a three-month trend. This leads to a quirk where the most recent RoC will be higher than the previous month RoC, but the percent from the baseline will decrease, or vice versa. This indicates that the most recent month's rate of change was, respectively, lower or higher than the three-month rate of change.|
|Q: Wouldn’t it be better to plot the BaR with fewer leading economic indicators?|
|A: The strength of the BaR is that is using an array of indicators that represent all aspects of the economy. The BaR provides an accurate portrayal of recent economic activity and sentiment. All 19 indicators correlate well with the business cycle and have a history of declining prior to recessions. When the majority of the indicators move in one direction, it is a sure sign of changing economic conditions.|
|Q: Often economic data is revised a month or two after it is released. Doesn't this affect how the BaR Analysis Grid reads from month to month?|
|A: Only six of the 19 economic indicators that are plotted on the BaR are subject to major revisions. It is rare that more than one or two see significant revisions during the same month. The key measure of the BaR is the MoC, which is the average of all plotted indicators. Even if several measures are revised in the following month, because the MoC is an average of all 19 indicators, its statisical change is generally insignificant.|