Chicago Fed: Recession Lite

By Brad Zigler

Welcome to another "good news, bad news" morning. Monday's release of the Chicago Federal Reserve Bank's National Activity Index shows economic activity, though slow in March (that's the bad news), was not as slow as in February (that's the good news).

The NAI's three-month moving average stood at -0.86 in March compared with February's -0.92 reading.

Now, that should make you feel good.

If you're not familiar with the Fed's index, it's the statistical equivalent of a kitchen catchall drawer: a weighted average of 85 production, income, employment, personal consumption, housing, sales and inventory indicators. A zero index value indicates the national economy is expanding at its historical rate of growth; negative values indicate below-average growth; while positive values indicate above-average growth. Index readings below -0.70 following a period of economic expansion are especially important, for they indicate, in Fedspeak, "an increasing likelihood that a recession has begun."

March marked the fourth consecutive month that the index was near or below the -0.70 threshold. I'll leave it to you to figure out where we stand economically.

We crossed the bar - that is, into negative territory index-wise, back in May 2006 and have been sliding ever downward since. The last visit to these tropics came in the wake of the dot-bomb explosion and the 9/11 attack, setting up a 37-month run of negative readings. More than a third of those - between January 2001 and January 2002 - were below the -0.70 threshold. The bottom was scraped in November 2001 when the Fed index hit -1.43.

Regarded from that perspective, our situation doesn't seem so parlous. Not so good, but not so bad, either.

Yet.

The really scary readings were back in the ‘70s stagflation era. For a couple of months in early 1975, at the top of the market for President Gerald Ford's WIN ("Whip Inflation Now") buttons, the NAI fell below 4.

But back then, oil prices were high, weren't they?

 

Chicago Fed's National Activity Index (3-month moving average)

Comments

[tom kern]

Ah yes, the '70 s. dot. com's were almost here and availability of dollars were not like they are today with ease of credit ,which is where we are today. hampered with productivity challenges to boot. the question is how long will the trend of negativity claim grip on our values and no longer be entertaining ! the #'s are concerning too! OK. next !