Chicago Fed National Activity Index - February 2010, -0.64


The Chicago Federal Reserve's National Activity Index (CFNAI) declined in February, to -0.64.

Led by declines in production-related indicators, the Chicago Fed National Activity Index decreased to –0.64 in February, down from –0.04 in January.
Three of the four broad categories of indicators that make up the index deteriorated, and only the sales, orders, and inventories category made a positive contribution.

The three month moving average is also down, -0.39 but is still at it's highest point since December 2007, the mark point start of this recession.

Zero is the neutral point of this index. Negative implies contraction. Following a period of growth, a CFNAI value of below -0.70 indicates a recession start. A value of +0.20 after a recession indicates you're really pulling out of one. This index is used to predict business cycles.

Note this, February’s CFNAI-MA3, (3 month moving average), suggests that growth in national economic activity was below its historical trend.. So, in other words, while things have improved from the trough, claiming the recession ended last July might be just more wishful thinking. Note we ain't got none +0.20 yet.

Thirty-four of the 85 individual indicators made positive contributions to the index in February, while 51 made negative contributions. Forty indicators improved from February to January, while 45 indicators deteriorated. Of the indicators that improved, 20 made negative contributions.

Of course we get blame the weather again when capacity utilization dropped. (this is the humming and buzzing of businesses, especially manufacturing making stuff). I find this particular news release from NASDAQ kind of ridiculous. Firstly the article is wrong on what the indicator states (unless the Chicago Fed made some major typos explaining their index!), it's not a guarantee a recession has ended just because an index is above -0.70, it's a probability of improvement, but it's the big +0.20 that is the significant metric on the three month moving average.

I find I am not alone in noticing this difference, that a above -0.7 does not equal a +0.2 and what that implies, which is no "V" shaped recovery as we normally consider them.

No V shape there.

So was I correct in being "outraged" by the insertion of a new definition for the end of a recession? No. It is probably a reasonable call to declare that we have reached a trough which is what they are saying has occurred. Things have stabilized and stopped getting worse. The markers they use for the start and end of a recession are arbitrary anyway, designed purely to anticipate where the NBER will call the start and end. The problem of course that it doesn't follow from the "V" in the CFNAI or other data that robust growth is around the corner and the consumption and housing component of the CFNAI shows no signs of life, a situation that presumably cannot continue indefinitely.

In summary the V shape in the CFNAI chart signals a bottoming of the economy, an inflection point in the underlying data, not a return to robust organic growth.

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2 cents and Mish

About a month ago, both Invictus, over at the Bonddad blog, and Mish thought that a Connecticut school district teacher’s union agreement to accept pay cuts was good news. I wrote a comment to Invictus noting how interesting it was, given the ideological spread (left to right) between him and Mish, that both were in agreement on the reduction of wages.

A similar convergence in thinking between left and right can be seen comparing this note on Chicago Fed National Activity Index with Mish’s on the same subject.

Not to worry: Bondadd is still seeing a ‘chicken in every pot’. See: “The stimulus did work Virginia”.

These here economic times is get’n curious’er and curious’er – sur’nuf!

Squeezing workers as routine

is bullshit. That, was not part of corporate strategy during the height of the U.S. economy, yet first up to increase profits and reduce costs they squeeze workers.