Economic activity in the US continued to decelerate in May, according to this morning’s update of the three-month moving average of the Chicago Fed National Activity Index (CFNAI-MA3). Last month’s reading slid to -0.36, the lowest in nearly four years. Despite the recent downtrend, CFNAI-MA3 remains above the tipping point of -0.70 that marks the start of a new recession, according to the Chicago Fed’s guidelines. By this standard, the economy was still expanding last month, although at a rate that’s well below the historical trend. In short, macro momentum has dropped to a dangerously slow pace.
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Former hedge fund manager Raoul Pal is a fan of the ISM Manufacturing Index. In fact, the one-time co-manager of the GLG Global Macro Fund in London puts this widely followed benchmark at the center of his analytical universe for all things related to global macro investing.  “The ISM is our best guide to the business cycle,” he says in a new 40-minute video. The index is regularly featured in his monthly newsletter, The Global Macro Investor. Pal’s reasoning for using this index inspires a fresh look at how the ISM numbers stack up for estimating recession probabilities in the US.
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