One of the most comprehensive measures of the economy is the Chicago Fed dNational Activity Index and for all the talk of how the economy has turned around, this broad barometer weakened to -0.58% in September (versus -0.3% expected). This was the second negative reading in a row.
The key three-month moving average metric dipped to -0.33%, from -0.32% and has been negative now for four months in a row, signalling below-potential growth.
We ran some regressions and found that the Chicago Fed index is pointing to sub 1% real GDP growth in Q4. That is not a contraction but it is too close for comfort.
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Last Friday, we mentioned that we stripped out the S&P 500 and the yield curve out of the Conference Board’s index of Leading Economic Indicators (LEI) to get a sense of what the ‘real economy’ was doing. We also ran some simple regressions versus real GDP and found that the real economy LEI has a better correlation than the official LEI — r-squared was 70% versus 60%.
...on this basis, the real economy LEI has fallen four months in a row, and suggests that real GDP could slow meaningfully into this quarter and early next year (we currently expected Q4 real GDP to be sub 1%). Not only that, but the coincident-to-lagging indictor fell 0.4% MoM in September, the third decline in as many months and also points to weaker growth ahead.
---Rosenberg
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