The Trend is Definitely Down


By Patricia L Johnson

Each month the Federal Reserve Bank of Chicago releases a National Activity Index for the preceding six month period and a second report indicating the three-month moving average. These reports are called CFNAI and CFNAI-MA3. The index is a weighted average of 85 different economic indicators from four categories:  (1) Production and income (2) Unemployment, employment, and hours (3) Personal consumption and housing (4) Sales, orders, and inventories.

The US economy historically shows growth; therefore a zero value on the index indicates the economy is growing.   A negative value indicates below-average growth, while a positive value indicates above-average growth.

The chart for 2008 indicates all values for the past six months.   Both the CFNAI and the three-month moving average index, CFNAI-MA3, are below zero indicating a below-average growth trend.  The three-month average index provides us with a more consistent index, but anytime the CFNA1-MA3 value drops below -.70 it is likely a recession has begun.  For the past six months this index has indicated values below -.70.

Dr. Ben Bernanke, Chairman Federal Reserve Board of Governors, recently appeared before the U.S. House Budget Committee and was asked his opinion on whether or not another stimulus is needed to jump start the economy.  Dr. Bernanke agreed the economy is in need of more stimulus.  But how much? 

It appears the $150 billion dollar stimulus package did assist the economy by giving June 2008 a bump up, but immediately dropped further down in the following month.

The one light at the end of the tunnel is the Emergency Economic Stabilization Act of 2008 (EESA) bank bail-out package.  Will this bailout turn the economy around or will it just be another measure that is too little, too late?  

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