The three-month average of the Chicago Fed National Activity Index (CFNAI) is expected to reflect a modest increase in the January update that’s scheduled for Monday (Feb. 22), based on The Capital Spectator’s average point forecast for several econometric estimates. The projection for -0.15 reflects a slight improvement over the previous month, which indicates US economic activity running moderately below the historical trend rate of growth. Only values below -0.70 signal an “increasing likelihood” that a recession has started, according to guidelines from the Chicago Fed. Using today’s average estimate for January as a guide, CFNAI’s three-month average is expected to reflect an expansion that’s moderately below the historical trend but well above the tipping point that marks the start of a new US recession.
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Analyzing history as a guide to the future is riddled with caveats, but if you’re mindful of the limitations there’s a mother lode of perspective waiting to be mined in the cause of modeling relationships in macro and markets. One of the more useful techniques in this corner: impulse-response (IR) simulations by way of vector autoregression (VAR) modeling. As econometric applications go, this is a powerful tool for developing perspective on a recurring question in all things economic and financial: What could happen to y if x changes by z percent?
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● Conference Board’s US Leading Economic Index Dips in Jan | RTT
● Americans’ Expectations for Economy Decline to 3-Month Low | Bloomberg
● Oregon Lawmakers Approve Landmark Minimum Wage Increase | AP
● The bull market in voodoo economic projections | Krugman/NY Times