Chicago Fed Index At Recession Level

The August National Activity Index (CFNAI) from the Chicago Federal Reserve Bank dropped sharply from July. The reading of -1.59 was its lowest level since the last recession during 2001.The current index level was then associated with -1.4% (AR) growth in quarterly real GDP.

The three-month moving average of the index also fell, but the drop was more moderate to -1.09 from -0.92 during July. The latest figure was exceeded, to the downside, during April.

An index level at or below -0.70 typically has indicated negative U.S. economic growth. A zero value of the CFNAI indicates that the economy is expanding at its historical trend rate of growth of roughly 3%. During the last twenty years there has been a 68% correlation between the level of the CFNAI and q/q growth in real GDP.

The complete CFNAI report is available here and the historical data are available in Haver's SURVEYS database.

All of the categories of the August index were indicated to have made negative contribution to the total during August, but the largest came from the production figures.

Inflationary pressure also was indicated to be low for the coming year.

The CFNAI is a weighted average of 85 indicators of economic activity. The indicators reflect activity in the following categories: production & income, the labor market, personal consumption & housing, manufacturing & trade sales, and inventories & orders.

In a separate survey, the Chicago Fed indicated that its Midwest manufacturing index improved again. The July index level was at its highest since this past March. Each of the component series, for the auto sector, machinery and resource sectors, rose and offset deterioration the steel sector index.

The U.S. Economic Situation and the Challenges for Monetary Policy is adapted from speeches made by San Francisco Fed Janet Yellen and it can be found here.

In some of the past financial crises, one could limit risks by diversifying into emerging markets. Over the past several weeks, however, the stock markets in many of the emerging countries have suffered the same fate as that of the developed countries. The first chart shows the year-to-year changes in the daily stock prices of four emerging markets--Argentina, the Czech Republic, Turkey and Hong Kong. These data are taken from Haver Analytics' INTDAILY database.

Not only have the stock price changes in the emerging markets shown a higher correlation with those of the developed countries, growth in many emerging market countries has also begun to show a higher correlation with that of the developed countries. The second chart shows the year-to-year percent changes in real GDP in the same four countries. Each country is from one of the different geographic areas represented in the Haver Analytics' Emerging Markets databases. Data for Argentina are from the database EMERGELA covering Latin America, the Czech Republic from the EMERGECW database covering Central and Eastern Europe and Western Asia, Turkey from the EMERGEMA database covering the Middle East and Africa and Hong Kong from the EMERGEPR database covering Asia Pacific.(Data for Argentina, Turkey, and the Czech Republic were released earlier this month; that for Hong Kong was released today.)

Japan’s all-industries index and tertiary index are up in the month and still very high in their historic ranges going back to the early 1990s. By contrast the construction sector is extremely weak with little evidence of any resilience. Despite the bounce in the month for the all-industry index and for the services sector (tertiary index) both seem to be still in a cyclical slide. The indices bottomed in this cycle in February of this year. It is still not clear what trajectory these two sectors are on. Japan’s economy is still under stress.