How to predict a recession 101

The Chicago Fed National Activity Index measures national economic activity. When its three-month moving average drops below -0.70, we're in trouble. The just-released value for August? -0.42 and falling.

This graph shows the Chicago Fed National Activity Index (blue line) and its three-month moving average (black). When the black line drops below -0.70 (red line), that's a powerful indicator that we're in a recession.

Today’s release of the Chicago Federal Reserve National Activity Index (CFNAI) indicated that national economic activity weakened notably in August with the index declining to -0.53 from a revised -0.11 in July while the three month moving average declined to -0.42.

The CFNAI is a weighted average of 85 indicators of national economic activity collected into four overall categories of “production and income”, “employment, unemployment and income”, “personal consumption and housing” and “sales, orders and inventories”.

The Chicago Fed regards a value of zero for the total index as indicating that the national economy is expanding at its historical trend rate while a negative value indicates below average growth.

A value at or below -0.70 for the three month moving average of the national activity index (CFNAI-MA3) indicates that the national economy has either just entered or continues in recession.

It’s important to note that at -0.42 the current three month average index value is indicating extremely weak growth near the recessionary level of -0.70.

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