Real Time Recession Indicator
The Chicago Fed National Activity Index (CFNAI) improved month over month. However, the index still remains negative. More importantly, my real time recession indicator, which utilizes the CFNAI data, remains negative.
The real time recession indicator is constructed from the Economic Cycle Research Institute’s Leading Economic Indicator and the CFNAI data. Looking at figure 1, the red labeled price bars correlate to those times that the indicator predicts that the US economy is in a recession. The green analogue line in the lower panel corresponds to the actual recession calls made by the National Bureau of Economic Research. While not perfect (but what is), there is a high degree of correlation between the two.
Figure 1. Real Time Recession Indicator/ weekly
Figure 2. Real Time Recession Indicator/ weekly
The CFNAI indicator is constructed from 85 different variables of national economic activity, and it is designed to gauge overall economic activity and related inflationary pressure. You read about the index by clicking here: Chicago Federal Reserve.
Category: Economic
Comments (9)
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I remember around the Aug-Sept lows last year that you pointed out that once SPX goes YoY negative, the likelihood is that much lower prices lie ahead. I think we are very nearly there now on SPX/DJIA – could you elaborate on this pattern in a future update?
Keep up the great work. This blog deserves a much wider readership.
Thanks for the comment!
Price based models can be used in predicting recession; even the ECRI relies upon the use of the SP500; I don’t recall what you remember but I know that John Hussman uses the 26 week rate of change of the SP500
I found the article:
http://www.thetechnicaltake.com/2010/08/31/whats-the-message/
Not looking good for the bulls so far!
Excellent! Interesting it didn’t work out that way last August but many feel that the Fed averted a recession by announcing QE2
Even my recession indicator gave a false during that time