Monday, November 26, 2012

CFNAI Red Alert

The Chicago Fed National Activity Index is a composite index built from 85 monthly indicators. A reading of zero is historical trend growth, a reading above zero is faster and below zero is slower growth.


The CFNAI came in at -0.56 for October and the three month moving average dropped again in October, also to -0.56. This is the lowest reading on the moving average since 2009, and the 8th negative monthly value in a row. The diffusion index came in at -0.32, a sliver away from the critical -0.35 threshold (see below).

There has only been one other time in recent history when a reading this low did not lead to a recession, and that was in 2003. If this is like 2003, we should see a big improvement soon and head back into positive growth territory. If not, well, Merry F'ing Xmas.

The Chicago Fed background document states that a reading above +0.7 indicates inflation danger and below -0.7 indicates recession danger. In a 2012 Chicago Fed Letter, Scott Brave and Max Lichtenstein found that:
the crossing of a -0.35 threshold by the CFNAI Diffusion Index signaled an increased likelihood of the beginning (from above) and end of a recession (from below). This threshold was determined using the Berge and Jord a ROC method. Additionally, Brave and Lichtenstein found that, on average, the CFNAI Difusion Index signals the beginning and end of recessions one month earlier than the CFNAI-MA3.


  1. If not, well, Merry F'ing Xmas.

    For what it is worth, I'm leaning heavily towards Merry F'ing post-Xmas. 2013 isn't looking good to me at all. Sigh.

  2. Stagflationary Mark,

    I know this is one data point, but it is a pretty scary one. Maybe all the Black Thursday/Friday Cyber Everyday sales will pump up the economy, but I'm not convinced.