April: The Recession Indicator fell to 4.1%
－ The Leading index rose for the first time in two months

June 8, 2018
Takashi MIYAZAKI (Senior Economist)

April: The Recession Indicator fell to 4.1%
－ The Recession Indicator for Japan released by Japan Center for Economic Research (JCER) fell to 4.1% from previous month by 1.5% points (Figure below) since the Leading Index as an underlying data rose for the first time in two months, due to positive contributions in inventory ratio of final demand goods, new housing construction started, commodity price, and others. The probability still remains below 67% which signals entering a recession.

What is the recession indicator?
The recession indicator (probability) is an "early-warning indicator" to detect a coming recession. The probability takes a value from zero to 100% and indicates that higher value corresponds to higher recession risk. When the recession probability exceeds 67% for two consecutive months, we assess whether it is considered that "early warning signal" alarms to the business condition. The probability tends to rise sharply when the Leading Index as an underlying data falls successively for a few months and it is a large decline. The recession probability in the past is retrospectively revised every time the latest Leading Index is released. Figure 1 above shows two types of recession probability; on the one hand, the probability which is derived from the data of up to six months ago (exhibited by black dashed line), and on the other hand, the probability which is obtained from all data including the latest one (exhibited by blue solid line).