July 85-Variable Chicago Fed National Activity Index Improves; We're Nowhere Near a Recession

The Chicago Fed National Activity Index is a weighted average of 85 individual indicators of U.S. economic activity. The indicators come from four broad categories of data: 1) production and income; 2) employment, unemployment, and hours; 3) personal consumption and housing; and 4) sales, orders, and inventories.  Given the fact that the Chicago Fed Index is a composite index based on 85 individual economic variables across all sectors of the U.S. economy, it is the most comprehensive economic index available, and therefore gives us one of the best, broadest, and  most complete pictures of economic conditions.  

The Chicago Fed released its report today for July and is reporting that U.S. economic activity increased in July, here are some details:

"Led by improvements in production-related indicators, the Chicago Fed National Activity Index (CFNAI) increased to –0.13 in July from –0.34 in June. Three of the four broad categories of indicators that make up the index improved from June, but only the production and income category made a positive contribution in July.
 
The index’s three-month moving average, CFNAI-MA3, decreased slightly from –0.18 in June to –0.21 in July—its fifth consecutive reading below zero (see chart above). July’s CFNAI-MA3 suggests that growth in national economic activity was below its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year."

MP: Historical research by the Chicago Fed concludes that it takes values of the CFNAI-MA3 below -0.70 before it's likely that the U.S. economy has entered into a recession, and that has been exactly and precisely the case for the last seven recessions - they were all periods associated with CFNAI-MA3 values below 0-.70 (see chart).   Therefore, the recent index readings for the CFNAI-MA3 below 0 indicate that economic growth is below trend, but there is no downward trend in the index, and it's nowhere close to -0.70, so it's safe to say that the U.S. economy is not in recession now, and is not headed toward a recession in the near future.    

Perma-bear Gary Shilling said a few weeks ago that, "We're already in a global recession," and ECRI's Lakshman Achuthan said in July that "the [U.S.] economy is in a recession already."  

According to the broadest and most comprehensive measure of U.S. economic conditions, we're nowhere near a recession and therefore as Scott Grannis commented recently, "The folks at ECRI have a lot more 'splainin to do."