A leading indicator composed of survey data : appropriate construction and prognostic significance

The Ifo Business Climate in trade and industry, the well-known representative of the monthly business surveys of the Ifo Institute, is an accepted leading indicator for the development of the German economy. The Business Climate is composed of the current assessment of business situtation and the expectations concerning the progression in the next six months. While the prognostic content of the business expectations is obvious, the assessment of business situation shows solely a lead to the publication of the official statistics. The average of the two data exhibits insofar of a leading indicator. But only the business expectations transmit really early signals of the cyclical development.