A real time recession indicator constructed from a composite of leading economic indicators, high frequency economic data, and SP500 pricing models continues to suggest that the US economy is NOT in recession.
This composite indicator utilizes data from the Economic Cycle Research Institute (WLI, LEI), the Philadelphia Federal Reserve (Aruoba-Diebold-Scotti Business Conditions Index), and the Chicago Federal Reserve (Chicago Fed National Activity Index). Furthermore, two SP500 price models (one proprietary and one not) are monitored. The data from the regional Federal Reserves and the ECRI continue to firm to the positive. In addition, the priced based models are far from confirming a recession. Although not in recession territory, growth isn’t exactly robust either as most measures are hugging the zero lines.
Figure 1 is a weekly chart of the SP500 with the composite Real Time Recession Indicator in the lower panel. With the indicator below the midline, the US economy is not in recession. Past and recent signals are shown. The 2011 signal turned out to be false and coincides with the launch of Operation Twist.
Figure 1. SP500/ weekly
Recent strength in the ECRI’s WLI and LEI has kept the indicator out of the recession zone. Figure 2 is a weekly chart of the SP500 with the WLI in the lower panel. The red labeled price bars are those times that the WLI should be consistent with a recession. This is when WLI is less than -2.4 or below the red line in figure 2. Over the past 3 years, this indicator has been better at identifying the next central bank liquidity operation than actually identifying a recession. Of course recently, no Fed intervention was needed as traders just needed to believe that central bank intervention would come at the first signs of economic and stock market weakness. See green up arrow on figure 2.
Figure 2. SP500/ weekly