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.
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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
Last week, I featured the ECRI’s WLI, and we noted that the indicator had turned down for several weeks in a row, and over the past 4 years, such weakness in the WLI indicator has been consistent with intermediate term market tops. This week we feature the Aruoba-Diebold-Scotti Business Conditions Index, which is a high frequency measure of the economy. This indicator has weakened substantially over the past months such that the moving average (red line) of the indicator is highly suggestive of a recession.
Figure 2. SP500/ weekly