Is The US Recession Over According To This Indicator?

The Chicago Fed National Activity Index (CFNAI) is among our favorite leading indicators. It has accurately forecasted every recession since 1967 with only 2 false signals. In December 2007, the 3 month average of the CFNAI dropped below -0.7 which is an indication that a recession has begun. Subsequently (months later), the NBER declared that indeed a recession had begun in December of 2007.

In the most recent release, the CFNAI - 3 month moving average turned up for the first time since June 2008. The indicator has a less than perfect batting average predicting the end of a recession, but a sustained increase in the 3 month moving average has been the hallmark of every recovery since 1967.

The implication of an increase in the CFNAI is that the precipitous drop in economic activity may have abated. However, the Chicago Fed raised concerns over unemployment. This remains a large drag on the economy and without a change it will be difficult to stage a large recovery. Typically unemployment is a lagging indicator, but we are dealing with a recession that is anything but typical.

In the current environment it is conceivable that unemployment has become a leading indicator. As more people lose their job, others begin to fear they themselves will lose their job and halt spending. While the CFNAI is another one of those “green shoots” the world is looking for, unemployment is still the primary concern.

Disclosures: None

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