Chicago Fed: US Growth Remained Sluggish In October

US economic growth continued to weaken in October, according to this morning’s update of the Chicago Fed National Activity Index’s three-month moving average (CFNAI-MA3). Last month’s reading slipped to -0.20, the lowest since Mar. 2015. But even after the latest decline, this benchmark of economic activity remains well above its -0.70 tipping point that marks the start of recessions, according to Chicago Fed guidelines. Meantime, there are signs that the trend will firm in the final months of the year. One clue is the Atlanta Fed’s current GDPNow estimate of fourth-quarter GDP growth: 2.3% (as of Nov. 18), which reflects a moderate improvement over Q3’s sluggish 1.5% increase.

As for CFNAI-MA3, the moderately negative reading for October “suggests that growth in national economic activity was somewhat below its historical trend,” the Chicago Fed said in a press release today.


The monthly data for the index, however, hints at a rebound last month. Before averaging, the Chicago Fed index climbed to -0.04 for October, a three-month high.

The monthly numbers are noisy, which is why the Chicago Fed recommends focusing on the three-month average for monitoring the business cycle. By that standard, the economy is still trending positive, albeit at a relatively slow pace. CFNAI-MA3’s current -0.20 level is moderately below the zero mark that equates with growth at the historical trend rate.

Nonetheless, the latest 3-month average is still comfortably above the -0.70 level that has historically signaled the start of new downturns. Analyzing the updated CFNAI-MA3 data with a probit model also shows that the probability is low (roughly 8%) that a recession started in October. The current risk estimate in the chart below is based on a probit regression that reviews the historical record of NBER’s business cycle dates in context with CFNAI-MA3.


The low-recession-probability estimate aligns with last week’s update of business-cycle risk via The Capital Spectator’s proprietary indexes. In particular, the Economic Trend Index is projected to stay in the mid-80% range, which is well above the 50% tipping point.


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