US economic growth decelerated last month, according to today’s update of The Chicago Fed National Activity Index, a macro benchmark based on 85 indicators. “The index’s three-month moving average, CFNAI-MA3, decreased to +0.10 in January from +0.26 in December, marking its fifth consecutive reading above zero,” the Chicago Fed reports.
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There are countless ways to quantify the risk of a new recession. Unfortunately, every methodology is flawed, which implies that it’s essential to analyze the beast from multiple angles. Monitoring the ratio of potential GDP to actual GDP deserves to be on the short list. It’s a timely topic because the Congressional Budget Office recently updated its estimate of potential GDP. The good news is that comparing this metric with reported GDP suggests that recession risk is still low, or at least it was through 2013’s fourth quarter.
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