Evaluation of alternative leading indicators of British Columbia industrial employment

Leading indicators based on principal components and weighted r² values are evaluated in this study. The tests are based on out-of-sample forecasts of British Columbia employment. Overall, the principal component approach is found to be superior in tests conducted separately by forecast horizons ranging from 1 to 12 months, and in tests conducted in the months immediately following the 1984-2 turning point. This finding is explained in the study by the methodological superiority of the leading indicator based on principal components of the input series.