Business Forecasting Final Project

By Babu Abhishek

ECON Final project

Entrega final Taller de R

Introduction The purpose of this analysis is to construct a Diffusion Index for three economic variables in the United States and compare it with the Chicago Fed National Activity Index: Diffusion Index (CFNAIDIFF). The Diffusion Index serves as an indicator of economic trends by summarizing the directional movement of selected variables. We will analyze the correlation between the two indexes and provide insights into their alignment and implications for current economic activity. Data Description The data used includes: 1. Employment data (Total Nonfarm Payrolls). 2. Industrial Production Index. 3. Retail Sales. 4. CFNAIDIFF data from the Chicago Fed. The data is preprocessed to calculate month-over-month changes and converted into binary indicators (expansion = 1, contraction = 0).