June: The Recession Indicator rose to 11.3%
－ The Leading Index declined for the first time in three months

August 8, 2018
Takashi MIYAZAKI (Senior Economist)

June: The Recession Indicator rose to 11.3% － The Recession Indicator for Japan released by Japan Center for Economic Research (JCER) rose to 11.3% from previous month by 7.3% points (Figure 1) since the Leading Index as an underlying data declined for the first time in three months, because of negative contributions in total floor area of new housing construction started, inventory ratio of producer goods for mining and manufacturing, sales forecast of small businesses, and others. The recession probability, however, still remains below 67% which alerts 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).