A broad reading on economic activity turned higher last month. “Led by improvements in production-related indicators, the Chicago Fed National Activity Index (CFNAI) rose to +0.11 in April from –0.44 in March,” the Chicago Fed reports. Meanwhile, the index’s three-month moving average slipped a bit to -0.06 from March’s +0.02. But that’s still far above the -0.70 value that the Chicago Fed advises is an early warning sign of a new recession. By that standard, we’ll need to see a dramatic deterioration in economic reports in the weeks ahead to argue convincingly that a new recession is fate. Some analysts already say the jig is up. Perhaps, but for the moment a dismal outlook from dismal scientists is still more of a forecast that a recognition of current conditions.
Based on the numbers in hand, it doesn’t appear that the economy is poised to fall off the cyclical cliff. Nonetheless, there’s room for doubt about what comes next. “Of the four broad categories of indicators that make up the index, only the production and income category and sales, orders, and inventories category improved from March and made a positive contribution in April,” the Chicago Fed noted in a press release.
A week ago I wrote: “We don’t yet have a full reading on the April reports, but what is available to date doesn’t look dark enough to expect that NBER will date last month as the start of a slump either.” Today’s update on the CFNAI strengthens the case for optimism, at least for April.
It’s too soon to say much of anything for May, at least with a high degree of confidence. Forecasting, as always, is wide open to interpretation. But given what we know about April based on the numbers published to date, it’ll take a radical shift to the dark side in this month’s economic news to tip the scales heavily toward a contractionary outlook. Anything’s possible, but it doesn’t look likely.
Bob Dieli, an independent economist who crunches the numbers at RDLB, Inc., recognizes that another slump is coming, but it’s not yet a clear and present danger. In a new report for clients, he writes:
We are going to have another recession. That, my friends, is always true. And that, my friends, is why the easiest forecast in the world is that we are going to have another recession. But the real question is: “when”? And I wish there was a law that said that queries regarding the phases of the business cycle always have to include the word “when”. So, to answer the question properly posed: “when are we going to have another recession?” my answer is: not soon.
Why? Several reasons, which he discusses in some detail for subscribers. To take one of several benchmarks he evaluates in the May edition of his “Prospects and Perspectives” report, industrial production looks quite buoyant. “In front of the last three recessions, and indeed in front of every recession since 1955, this number [on a one-year percentage-change basis] has been running at or near zero when the recessions have gotten under way,” he notes. “While times have changed,” he quips, industrial production’s 5.2% annual growth rate through April “is not the new zero.”
Not every economic indicator appears as strong. Employment growth, to cite the leading example, has been slowing lately. But initial jobless claims of late tell us not to jump the gun here either.
It’s folly to ignore all the macro risks swirling about at the moment, some of which may be bubbling higher–Europe in particular. The euro factor may be our downfall, but it’s not yet obvious in the U.S. numbers. Tomorrow, of course, is another day.