Recession risk is projected to remain low, according to the revised projection for the three-month average of the Chicago Fed National Activity Index (CFNAI). This benchmark of the business cycle is expected to increase slightly to -0.14 in tomorrow’s delayed update for September, according to The Capital Spectator’s average econometric forecast. Today’s revised estimate incorporates new data that’s been published since last month’s government shutdown ended, although the current outlook is essentially unchanged from the earlier forecast for tomorrow’s September release.

In the previous update from the Chicago Fed, CFNAI’s three-month average inched higher to -0.18. Values below -0.70 indicate an “increasing likelihood” that a recession has started, according to guidelines from the Chicago Fed. Based on today’s estimate, CFNAI’s three-month average is projected to remain at a level that’s historically associated with economic expansion, albeit at a below-trend rate.

Here’s a closer look at the numbers, followed by brief definitions of the methodologies behind The Capital Spectator’s projections:
VAR-4A: A vector autoregression model that analyzes four economic time series to project the Chicago Fed National Activity Index: the Capital Spectator’s Economic Trend & Momentum Indexes, the Philadelphia Fed US Leading Indicator, and the Philadelphia Fed US Coincident Economic Activity Indicator. VAR analyzes the interdependent relationships of these series with CFNAI through history. The forecasts are run in R with the “vars” package.
VAR-4B: A vector autoregression model that analyzes four economic time series to project the Chicago Fed National Activity Index: US private payrolls, real personal income less current transfer receipts, real personal consumption expenditures, and industrial production. VAR analyzes the interdependent relationships of these series with CFNAI through history. The forecasts are run in R with the “vars” package.
ARIMA: An autoregressive integrated moving average model that analyzes the historical record of the Chicago Fed National Activity Index in R via the “forecast” package.
ES: An exponential smoothing model that analyzes the historical record of the Chicago Fed National Activity Index in R via the “forecast” package.