AbstractIn this paper the econometrics of latent variables in conjunction with leading economic indicators are used to predict turning points of the US industrial production variable for various forecasting horizons. The results reported here show that leading indicators used in regression models with a dichotomous dependent variable that marks periods of economic expansion and contraction forecast business cycle turning points accurately. Leading indicators produce the most reliable forecasts of turning points five months prior to cyclical changes and do not give any false signals. Moreover, the weights assigned to leading indicators for producing the index vary as the forecast horizon changes.