Chicago Fed: 3-Month US Macro Trend Falls To 4-Year Low In May

Economic activity in the US continued to decelerate in May, according to this morning’s update of the three-month moving average of the Chicago Fed National Activity Index (CFNAI-MA3). Last month’s reading slid to -0.36, the lowest in nearly four years. Despite the recent downtrend, CFNAI-MA3 remains above the tipping point of -0.70 that marks the start of a new recession, according to the Chicago Fed’s guidelines. By this standard, the economy was still expanding last month, although at a rate that’s well below the historical trend. In short, macro momentum has dropped to a dangerously slow pace.
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Is The ISM Mfg Index A Silver Bullet For Business Cycle Analysis?

Former hedge fund manager Raoul Pal is a fan of the ISM Manufacturing Index. In fact, the one-time co-manager of the GLG Global Macro Fund in London puts this widely followed benchmark at the center of his analytical universe for all things related to global macro investing.  “The ISM is our best guide to the business cycle,” he says in a new 40-minute video. The index is regularly featured in his monthly newsletter, The Global Macro Investor. Pal’s reasoning for using this index inspires a fresh look at how the ISM numbers stack up for estimating recession probabilities in the US.
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Chicago Fed Nat’l Activity Index: May 2016 Preview

The three-month average of the Chicago Fed National Activity Index (CFNAI) is expected to tick higher in tomorrow’s May report, based on The Capital Spectator’s average point forecast for several econometric estimates. The average projection for -0.15 reflects a modest improvement over the previous month. The forecast for May still anticipates that US economic growth is running below the historical trend rate for expansion. But the projection also points to a 3-month CFNAI reading that’s well above the level that marks a new NBER-defined recession.
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Treasury Market’s Inflation Forecast Holds Near 4-Month Low

Treasury market inflation expectations remain close to the lowest level since February, when economic worries were elevated. The yield spread for the nominal 10-year Treasury Note less its inflation-indexed counterpart was unchanged yesterday (June 22) at 1.43%, based on daily data via Treasury.gov. That’s near the lowest level since February—a sign that the bond market is cautious on the outlook for the US economy. Or is it a byproduct of temporary Brexit fears, which may or may not lift after tomorrow’s referendum in the UK that will decide if Britain remains in the European Union? Whatever the source of the downside bias in Treasury inflation expectations of late, the soft trend contrasts with the recent rebound in the US stock market, which implies that any macro worries are exaggerated for the world’s largest economy.
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US Business Cycle Risk Report | 20 June 2016

The key question these days for judging the outlook for the US economy: Is the sharp slowdown in job growth in May a sign of trouble in the months ahead or just a temporary blip for an otherwise healthy if aging economic expansion? We’ll have the first installment on an answer when the government publishes the June employment report in a few weeks. Meantime, the incoming numbers paint a mixed profile overall for the US macro trend, although there’s still no smoking gun for arguing that a new recession started last month via a broad review of the data.
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