Recession Chances Rise

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Chicago Fed: Recession Chances Rise

Apr 3 10:56am ET

By Barbara Hagenbaugh

WASHINGTON (Reuters) - The likelihood that the United States is in a recession has
risen, but the nation may very well steer clear of a serious economic downturn, the
Federal Reserve Bank of Chicago said on Tuesday.

The Chicago Fed said its National Activity Index was -0.89 in February, a slight decline
from a revised -0.87 reading in January. The three-month moving average index, which
smooths out month-to-month fluctuations, was -0.81 in February, down from -0.78 in

Economists at the Chicago Fed said that while the decline in the index suggests an
increased probability that the U.S. economy is in a recession, in prior recessions the
index was much lower.

"As an early warning, from the value of the index that we see here, there is an
increasing probability that the economy is in a recession, but it is still very early,"
Chicago Fed senior economist Charles Evans said.

Since 1967, the year the regional Fed's data goes back to, the three-month average
index was below -1.50 during the five recessions in that period. The index dropped
below -0.70 only six times in that period, but one of those times did not amount to a
recession, Evans said.

A year ago, when the U.S. economy was flying high and the biggest concern was
inflation, the monthly index was +0.04 while the three-month average was +0.38.

The Chicago Fed index is a reading based on 85 economic indicators that cover areas
including production, income, employment, consumption, housing and manufacturing.

Evans said the index, which the Chicago Fed began releasing last month, continued to
be weighed down by a suffering manufacturing sector. Twenty-seven of the 85
indicators included in the index are related to manufacturing output.

Woes in the manufacturing sector accounted for -0.63 of the February value of -0.89.

But there was a silver lining to the latest index. Of the 85 indicators, 47 improved in
February from the prior month. However, 55 still suggested below-average growth, the
Chicago Fed said.

Evans said the index continued to be boosted by strong employment and housing
data, while orders in the manufacturing sector showed some improvement.

The Chicago Fed revised its January estimate from -0.55 to -0.87, mostly to reflect
revisions to industrial production and employment data.
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