The BBKI:
Brave-Butters-Kelley Indexes
July 1, 2024

The BBKI is a barometer of where the economy is and where it might be heading in the future.

This data set summarizes 490 macroeconomic time series extending back to 1960 to generate a coincident index that provides a snapshot of the current state of the economy, a leading index that looks toward the future, and monthly gross domestic product (GDP) growth estimates.

The latest release

July 1, 2024 (May data)

As we complete the first half of 2024, there continues to be a modest amount of uncertainty about the economic outlook. The latest revision of Q1 real GDP growth is 1.4%, reflecting a slowdown. Meanwhile, while the labor market continues to show strength, it too has shown recent signs of slowing down — including a modest uptick in the unemployment rate. Moreover, there are some sectors (e.g., housing) that have slowed considerably, some of which is attributable to their sensitivity to the increase in interest rates experienced over the last couple of years. How pervasive these trends become and how much more progress can be achieved on inflation returning to the Federal Reserve’s preferred target of 2% will be crucial elements in determining where the economy is headed.    

Looking under the hood with the BBKI

The latest release of the Brave-Butters-Kelley Indexes (BBKI) has the coincident indicator at -0.2 for May, increasing from our revised estimate for April of -0.5. This reading suggests the economy in the second quarter has grown a bit below trend, which our model estimates to be near 2.8%. The latest estimate does indicate, however, that the economy improved since April. This improvement in part reflects the modest uptick in industrial production, an increase in total nonfarm payroll employment growth, as well as an increase in the growth of real personal consumption expenditures in May.  

Taken together, the BBKI suggests the path for the economy in the first half of 2024 has certainly slowed down since the back half of 2023. The extent to which this weakness is temporary or becomes more entrenched and starts affecting the labor market more dramatically is likely to be of significant interest as we close out 2024.

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An additional look at quarterly GDP

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What is the BBKI?

Business cycle indexes and monthly GDP growth

Because the most comprehensive measures of economic activity, such as gross domestic product (GDP), have a substantial time lag before they are published, policymakers and businessses require more timely and accurate assessments of overall economic activity in order to make better decisions. This led a group of economists from the Federal Reserve Bank of Chicago and the IU Kelley School of Business to create a set of indexes — the BBKI — that can accurately identify key turning points in economic activity earlier.

The BBKI inputs an unbalanced panel of 490 monthly measures of real economic activity plus quarterly real GDP growth extending back to January 1960. (These data broadly reflect the set of real economic activity indicators commonly used to forecast U.S. GDP growth.) The outputs include a coincident index, a leading index, and not only a measure of monthly GDP growth, but also a decomposition of it into its trend, cycle and irregular components.

The coincident index

The coincident index addresses the question: "Where are we?"

It is measured in standard deviation units and assesses the current strength of the economy. Using a threshold value of -1.0, provides a remarkably accurate (up to 99% accurate) way to gauge whether the economy is in a recession. This accuracy in gauging the strength of the economy has been shown to best many of the leading alternatives and can often come in a much timelier fashion given that the BBKI is released monthly.

The leading index

The leading index addresses the question: Where are we going?

It is a sub-component of the coincident index that isolates the economic activity that has historically been a leading signal of the trajectory of economic activity going forward. This leading index has on several occasions projected a future business cycle turning point several months before a peak or trough actually occurs — historically being the most informative about six to seven months out.

Monthly GDP growth

Each month, real GDP growth is allowed to have three separate components — each with their own separate type of dynamics — that all must add up to yield the total amount of growth or contraction.

  • Trend: This represents the very low-frequency and slow-moving component of real GDP growth. One can interpret it as the very long-run average of real GDP growth. While the trend component does not vary that much month to month, over the last several decades we have seen a noticeable decline in the long-run average of real GDP growth.

  • Cycle: This is the component of real GDP growth that reflects the business cycle. It is designed to capture systematic expansions or contractions across a variety of sectors of the economy. It is the cycle component that in many instances will be the most influential in guiding assessments about the health of the economy and public policy decisions designed to address it.

  • Irregular: This component is what remains “left over,” after accounting for the trend and cycle components, to get back to the amount of growth or contraction we observed. While the BBKI methodology is designed to have the trend and cycle components reflect movements that are likely to govern the direction of growth going forward, the irregular component is designed to reflect more “one-off” or random fluctuations that are less likely to reflect where economic activity is headed in the future.

The BBKI approach identifies each of these components by breaking down the quarterly time series of real GDP and how it relates to the large set of other economic activity indicators. By leveraging the monthly indicators, it is able to construct these measures (and the aggregate) at a monthly frequency. This means the BBKI is able to provide a more detailed estimate more frequently than is reported by the U.S. Bureau of Economic Analysis.

Read more about the BBKI


Release schedule

The table below shows upcoming releases along with the data used in each release.

Date of Release Monthly Data
July 29, 2024  June 2024
September 3, 2024  July 2024
September 30, 2024  August 2024
November 4, 2024  September 2024
December 2, 2024  October 2024
December 23, 2024  November 2024

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About the creators

The BBKI was developed and published by a team of economists within and outside the Federal Reserve Bank of Chicago. Prior to August 2022, these indexes were regularly produced by the Federal Reserve Bank of Chicago, but are now published by the Indiana Business Research Center (IBRC) at the IU Kelley School of Business.

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Brave

Scott A. Brave was a senior policy economist in the Economic Research Department at the Federal Reserve Bank of Chicago during the development of this index. He is now Senior Economist and Economic Advisor at the Federal Reserve Bank of Chicago.

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Butters

R. Andrew Butters is an associate professor at the Kelley School of Business at Indiana University and a contributing author for the Indiana Business Research Center.

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Kelley

David Kelley was a research analyst in the Economic Research Department at the Federal Reserve Bank of Chicago during the development of this index. He is now Senior Quantitative Associate at the Federal Reserve Bank of New York.