Posts filed under “Research”
The Chicago Fed’s National Activity Index (CFNAI) printed this week. The CFNAI is among my favorite indicators that no one seems to follow (though it is covered monthly by Calculated Risk and usually David Rosenberg). It is an amalgam of 85 distinct economic indicators that gives a very accurate read on the economy. The folks in Chicago tell us to focus more on the three month moving average than the month-to-month number, and tell us further that, “When the CFNAI-MA3 value moves below –0.70 following a period of economic expansion, there is an increasing likelihood that a recession has begun.”
So, where are we as of this month’s print? Try -0.60, a mere 10 bps from what is likely recessionary terrain:
Source: Chicago Fed. Red line denotes likely recession threshhold.
I’ll outsource the commentary to Rosie (while noting for the record that I’d Tweeted about this in advance of his piece, lest I be accused of appropriating his work):
Note that the worst we got last summer was -0.28 so indeed, this is a different “soft patch” and perhaps a more pernicious one than we experienced in last year’s “head fake.” Also note that we hit -0.60 on the CFNAI index in January 2001 and March 2008, both times the major equity indices were off the highs but still close enough to be keeping the bull market psychology alive. Only in December 1991 and in April 2003 did we slip to -0.60 and actually not slip into contraction mode in the real economy; however, the former was still very close to the prior recession so it wasn’t even clear at that point that it was over; the latter was all about the Iraq war and proved temporary. It is debatable as to whether the similar move through -0.60 in July 1989 provided a false signal as it did lead the recession (again, a recession that nobody saw coming at the time) — at the very least it marked the nearing of the end for that long cycle of the 1980s and gave an early signal for investors to start trimming risk.
For the curious, next month’s print would have to be -1.09 to achieve a sum of -2.10 for three months (and hence a 3-mo ma of -0.70). While a drop from this month’s -0.46 to a -1.09 is rather large for this index, it is in the realm of historical experience. If I had to guess, I’d say we won’t hit the -0.70 three month moving average next month. But we are in dangerous territory to be sure.
Oh, and for the inflationistas in the audience, there’s this from the Chicago Fed:
When the CFNAI-MA3 value moves above +0.70 more than two years into an economic expansion, there is an increasing likelihood that a period of sustained increasing inflation has begun.
Translation: Don’t hold your breath.
A Bank of America Merrill Lynch research note on the abysmal nonfarm payrolls number for June contained this graph: A February 2010 Big Picture post on slack in the labor market contained this graph: My comment at the time, which holds true today: I’d postulate that only when this gap starts to close meaningfully will…Read More
A mention by David Rosenberg in a recent note sent me scurrying to find this report from the San Francisco Fed in August of last year. The report — remember, it was almost one year ago — used the Leading Economic Indicators to assess the probability of another recession within the next 24 months (from that date,…Read More
Tons of talk and pixels being spilled over the imminent inflation threat. It bears an eerie resemblance to what we heard from the likes of Jerry Bowyer and Art Laffer two years ago. I’d fade it now, exactly as I suggested back then (here and here, the latter piece co-authored with Bonddad): Exhibit A —…Read More
Invictus here. I’m halfway through Greg Farrell’s Crash of the Titans: Greed, Hubris, the Fall of Merrill Lynch, and the Near-Collapse of Bank of America. Perhaps I’ll post a thorough review when I’m done with it. So far, so good, though I’ll confess it’s a bit like watching one’s own funeral — very morbid; sad…Read More
Duly noted in a research piece by Merrill Lynch, the wealth gap continues to widen, poverty grows: The following article caught our attention on the Wall Street Journal Online, “Millionaire Population Soars – Again.” The Wall Street Journal is reporting on a survey performed by Phoenix Marketing International’s Affluent Market Practice. According to the survey,…Read More
It is a very hot August and the heat seems to be getting to people on Wall Street. In Washington the greater heat stems from fears about the impact of the economy and housing on the mid-term elections. As a result, Wall Street is expecting a big “surprise” in the form of a massive GSE…Read More
Warning: The following post is offered in the spirit of shameless self-promotion. Those who prowl the web and consume all manner of economic research probably saw some things late last week that looked eerily familiar. Maybe you could place them, maybe you couldn’t. Perhaps you wondered, “Where have I seen that before?” Well, in at…Read More
The National Federation of Independent Business (NFIB) released its monthly Small Business Economic Trends (SBET) survey, and the outlook for small businesses is still not good. The NFIB counts its membership at about 350,000 small businesses. The overall Optimism Index declined in the month of March to 86.8, roughly the same level it was at…Read More
Interesting discussion by the always worth reading Mark Hulbert about a recent research paper on Short Selling. While I agree with the paper’s conclusion, it overlooks two major related issues regarding short selling. Let’s look at a few excerpts first: “Short-selling became particularly controversial during the recent bear market, when many of its practitioners turned…Read More