Another week starts with another economic indicator slumping into recessionary territory. Today’s release of the Chicago Fed National Activity Index (which is comprised of 85 subcomponents and measures a large swath of economic activity) slipped further into negative territory. The index has remained negative for 6 out of the last 7 months and is a feat that is only experienced in the history of the index leading up to, or just coming out of a recession.
We recently posted a blog about the likelihood of rising jobless claims and unemployment as companies fall back to cost cutting measures to protect profit margins. Contained in today’s CFNAI release is the employment situation report which showed a larger than expected decline from a .12 in July to a -.08 in August. However, the weakness was not contained in just the employment number but spread through to consumption & housing which declined to -0.35 from -0.33 in July. With consumption and housing making up a substantial portion of economic activity this does not bode well for the economy.
Production-related indicators rose 0.01 in August which is a positive development until you realize that the indicator is down sharply from 0.26 in July. This sharply negative decline will likely continue into September due to broad spread economic weakness seen in the other areas of the report.
The 6-month average is also pushing deeply into negative territory as well sliding from a -.26 in July to -.29 in August and has remained in negative territory for 5 months running.
All in all this was not a healthy report. Furthermore, it goes to support our view from our post on Friday that we are in now or about to be in, barring some massive government intervention program, a recession. Investors are cautioned to remain heavily weighted toward cash and fixed income for the time being and treat market rallies as selling opportunities.