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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● US jobless claims fall to lowest level since Nov | Bloomberg
● Philly Fed index: mfg in Feb contracts for 6th straight month | MarketWatch
● 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

Today’s upbeat numbers on jobless claims raise fresh doubts about the implied warnings of a US recession via a markets-based view of the macro trend. New filings for unemployment benefits fell more than expected last week, dropping to 262,000—close to the multi-decade low of 255,000 that was reached last July. There’s still plenty of wobbly numbers around to keep everyone guessing. But until further notice, jobless claims no longer deserve a spot on the short list of key indicators worry about.
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US macro risk has eased in recent days, thanks to a mix of upbeat economic reports and a rebound in financial markets. The potential for trouble is still elevated relative to the outlook during last year’s fourth quarter. But for the moment, the numbers generally look a bit less threatening compared with the steady drumbeat of warnings in previous weeks.
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● Strong US industrial output in Jan bolsters growth picture | Reuters
● US Housing Starts Unexpectedly Tumble 3.8% In January | RTT
● Atlanta Fed’s US Q1 GDP estimate ticks lower to +2.6% | Atlanta Fed
● Atlanta Fed’s Bus. Inflation Expectations in Feb unchanged at +1.8% | Atlanta Fed
● OECD Cuts Global Growth Forecast, Warns of Growing Risks | Bloomberg
● Japan exports fall most since 2009 as global slowdown bites | Reuters
● China Jan inflation data shows deflationary pressure persists | Reuters

One step forward, one step back. Residential construction activity was softer than expected in January while industrial production rocketed skyward after falling in each of the previous three months, according to this morning’s updates from the US Census Bureau and Federal Reserve, respectively. Today’s economic data overall offers a mildly upbeat message. Considered in context with previous releases for January, the data du jour suggests that last month wasn’t the start of a new NBER-defined recession. The near-term outlook is still wobbly, but this morning’s reports hint at the likelihood that the US economy will continue to muddle through the recent rough patch and avoid a new downturn.
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Last week’s deep dive in Treasury yields continued to reverse course yesterday, offering a reprieve to the aggressive risk-off posture that’s been roiling markets lately. Today’s twin updates on US industrial production and housing construction for January will help determine if the crowd’s latest round of optimism is warranted. But for the moment, it’s clear that the bond market is having second thoughts about the wisdom of pricing in high odds of new recession. Until further notice, the feeling is mutual over in equityland as of yesterday’s sharply higher close.
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● NY Fed mfg index in Feb shows contraction for 7th straight month | RTT
● Homebuilder confidence wanes in Feb. dipping to 9-mo low | HousingWire
● Fed’s Kashkari: More steps needed to prevent meltdown repeat | WaPo
● The Stock Market Is Not the Economy | Strategy+Business
● Why New OPEC deal may not increase oil prices | USA Today
● UK: Oct-Dec Jobless Steadies As Wage Growth Falls | MNI
● China sends missiles to contested South China Sea island | Reuters

US industrial production is expected to post a 0.1% rise in tomorrow’s January report vs. the previous month, according to The Capital Spectator’s average point forecast for several econometric estimates. The prediction anticipates the first monthly increase in five months.
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