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In Memoriam

From the Editor

John Kitchen and Ralph Monaco: Real-Time Forecasting in Practice

Jonathan McCarthy: Capital Overhangs

Henry Townsend: The Expected Rate of Return for Equities

Rolando F. Peláez: A Reassessment of the Purchasing Managers’ Index

Timotej Jagric: Forecasting with Leading Economic Indicators—A Neural Network Approach

A. Gary Shilling: Pension Profits Become Corporate Costs

Jack Kyser: The Los Angeles County Economic Development Corporation

Leslie G. Polgar: Flat Panel Displays

Robert P. Parker: December Will Bring Major Changes to the U.S. National Income and Product Accounts

Book Reviews

A Reassessment of the Purchasing Managers’
Index

By Rolando F. Peláez

Rolando F. Peláez is professor of finance at the University of Houston-Downtown. He holds a Ph.D. degree in economics from the University of Houston.

Several recent papers have documented the effects of unexpected changes in the Purchasing Managers’ Index (PMI) on domestic and overseas financial markets. Whereas other indices are re-weighted periodically to enhance their usefulness, the PMI remains a composite of five diffusion indices whose weights have not changed. This paper shows that the PMI is not optimally weighted, and develops a new index that is demonstrably superior to the PMI as an indicator of the growth rate of real GDP.

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(Due to production errors, the print version of this article, as well as the original articles placed on the website, had errors in equations 2,3,4,14,15,16, and 18. A corrected version of this article was placed online on December 24.)