It didn’t look like a recession that month, and it didn’t look like it before.
figure 1: CFNAI, standard deviation units (blue), CFNAI 3-month moving average (green). For trend growth rates, CFNAI is normalized to 0. For the CFNAI 3-month MA, the green dashed line represents the post-systolic dilation threshold and the post-diastolic systolic threshold. The lilac shading indicates a hypothetical H1 recession. resource: Chicago Fedreleased in August.
The three-month moving average is very slightly above zero, indicating that growth is at historical trend growth. It is well above the level consistent with a contraction (i.e. a recession). CFNAI-MA3 is very consistent with NBER-defined recessions (see Chicago Fed website for necessary graphs), with the exception of the 2007 recession, where CFNAI-MA3 was in April 2008 (rather than January 2008, after the recession month) exceeds the threshold. Peak defined by NBER).
In fact, the CFNAI 3-month moving average is above the contraction threshold for the entire period shown in the graph, so – contrary to the assertions of some observers – I do not see a recession in the first half of 2022 nor in August. This is further reinforced by the CFNAI Diffusion Index.
figure 2: CFNAI diffusion (brown). Below the tan dashed line is contraction and above it is expansion. The lilac shading indicates a hypothetical H1 recession. resource: Chicago Fedreleased in August.
After a period of expansion, the diffusion index is also above levels consistent with contraction. This measure also worked well, except to show that the recession began in December 2000, rather than the NBER contraction that began in April 2001.
Therefore, CFNAI is a weighted average of 85 indicators of economic activity (describe here), which suggests we are not in a recession as of August 2022, nor have we been in a recession over the past year.
