Chicago Fed Index Indicates Recession

The National Activity Index (CFNAI) for March, published by the Chicago Federal Reserve Bank, improved slightly to -0.78 from its low February reading of -1.28. Nevertheless, the recent level was near the lowest since early 2003 and was just above the levels reached during the 2001 recession.

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. An index level at or below -0.70 typically has indicated negative U.S. economic growth.

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

Each of the four broad categories of indicators — employment, production, consumption and housing — continued to make negative contributions to the CFNAI during March.

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.

Economic Trends and the Chicago Fed National Activity Index from the Federal Reserve Bank of Chicago is available here.

Globalization and Inflation Dynamics: The Impact of Increased Competition from the Federal Reserve Bank of New York can be found here

Four countries, Russia, Slovenia, Latvia and Estonia in Eastern Europe reported Producer Price Indexes (PPI) today. Except for Estonia where producer price inflation declined by 69 basis points in March, the other countries showed increases: in Slovenia, a rise of 17 basis points; in Latvia, a rise of 94 basis points and in Russia a rise of 230 basis points. The first chart shows producer price inflation in the four countries. While increases in producer price inflation have tended to moderate in Estonia, Latvia and Slovenia, the increase in Russia has accelerated. In March the producer price inflation, represented by the year to year rise in Russia's PPI was 26.6%, nearing the peak of 28.8% reached at the end of 2004 and well above producer price inflation in the other three countries.

Earlier this month consumer price indexes (CPI) for these countries were released. Inflation at the consumer level, measured by the year to year changes in the CPI is shown in the second chart and noted in the table below. Consumer price inflation in all four countries has shown a similar rising trend since early 2007. In contrast to producer price inflation, it is Latvia where consumer price inflation is currently highest at 16.7% and Russia, second highest at 13.3%. So far in 2008, inflation at the consumer level has been higher than that at the producer level for all except Russia where producer inflation has been twice as high as consumer price inflation. The recent steep rise world in food prices may account for the relative greater increase in the consumer price index since food has a greater weight in the CPI than in the PPI. Like the rest of the world, these countries have seen record rises in food prices as shown in the third chart.

Japan’s MFG and services sectors diverged in February. The MFG index stands at its highest level since 1993 and in growth terms (chart) it is accelerating to a more midrange value. The services sector (Japan’s tertiary Index) has, however, fallen sharply. While the service index is still strong, residing in the 87th percentile of its range, the drop in the index is sharp and worrisome. Even in recessions the index does not usually drop this sharply.