Multivariate leading indicator forecasts. The multivariate leading indicator forecasts are of the form,
where {w-t} are various leading indicators that have been used elsewhere to forecast these variables.

For the IP forecasts, the set of eleven leading indicators used here are those that we have used in real time forecasting using experimental coincident, leading and recession indicators (see Stock and Watson [1989, 1991]) . Five of these leading indicators are also used in the factor estimation step in the the diffusion index forecasts. These are (the mnemonics under which they appear in Appendix В appear in parentheses): average weekly hours of production workers in manufacturing (lphrm); the capacity utilization rate in manufacturing (ipxmca); housing starts (building permits) (hsbp); the index of help-wanted advertising in newspapers (lhel); and the interest rate on 10-year U.S.

Treasury bonds (fygtlO). The remaining six leading indicators are: the interest rate spread between 3-month U.S. Treasury bills and 3-month commercial paper; the spread between 10-year and 1-year U.S. Treasury bonds; the number of people working part-time in nonagricultural industries because of slack work; real manufacturers’ unfilled orders in durable goods industries; a trade-weighted index of nominal exchange rates between the U.S. and the U.K., West Germany, France, Italy, and Japan; and the National Assiation of Purchasing Managers’ index of vendor performance (the percent of companies reporting slower deliveries).