Chi. Fed Index: Another V-Shaped Recovery Sign

CHICAGO FED -- Led by improvements in production- and employment-related indicators, the Chicago Fed National Activity Index increased to –0.07 in March, up from –0.44 in February. Three of the four broad categories of indicators that make up the index made positive contributions in March, while the consumption and housing category made the lone negative contribution.

The index’s three-month moving average, CFNAI-MA3, increased to –0.18 in March from –0.31 in February (see chart above). March’s CFNAI-MA3 suggests that growth in national economic activity, while still below average, continues to improve. With regard to inflation, the amount of economic slack reflected in the CFNAI-MA3 indicates subdued inflationary pressure from economic activity over the coming year.

Explanation: When the CFNAI-MA3 value moves below –0.70 following a period of economic expansion, there is an increasing likelihood that a recession has begun. Conversely, when the CFNAI-MA3 value moves above –0.70 following a period of economic contraction, there is an increasing likelihood that a recession has ended.

MP: The CFNAI-MA3 has now been above -0.70 for the last five months, and in six out of the last seven months, signalling the end of the recession. Further, the strong improvement in the CFNAI-MA3 in the last year follows the same pattern following the end of the last five recessions, especially the recessions of the 1970s and 1980s.