Tuesday, December 23, 2008
The Federal Reserve Bank of Chicago released the Chicago National Activity Index (CNAI) yesterday. November's CNAI fell 1.2 to -2.47, and the 3-month moving average - a better gauge of the trend - turned down another 0.09 to -2.49. Economic activity - as measured by 85 weighted variables - digs deeper into recession.
Values below -0.7 signal that the economy has moved into a recession, while those above 0.2 indicate that the economy has emerged from the recession. The index correctly predicted the start of the current downturn; the CNAI fell below -0.7 to -0.74 in December 2007.
Twelve months into this cycle, the index surpassed the 1990-1991 and 2001 recession lows and rivals the index trough of the 1981-1982 recession, -2.55. Not surprisingly, the November CNAI plummeted mostly on a quickening deterioration of the labor market. Job loss as measured by the nonfarm payroll worsened significantly since September compared to the first eight months of the year. Industrial production, manufacturing sentiment, consumption, and housing also weighed down overall economic activity.
With almost every sector of production and overall demand sinking at an increasing rate, economic growth continues in reverse. Look for the CNAI to hit 0.2 for signs of economic life, but that is unlikely until the middle to second half of 2009.