Source
Here is a snippet talking about the construction of this index.
This morning's release of the Dallas Fed
Manufacturing Survey, which dipped from 5.5 in January to 2.2, and the
Chicago Fed National Activity Index, which declined from .02 in December
to -.32 in January, further supports the previous discussion as to why
the economy currently lacks escape velocity. However, the problem with
viewing these reports on a monthly basis is twofold: 1) we are looking
at specific data points rather than the longer term trend of the data;
and 2) we are trying to extrapolate disparate data points into the
entirety of the domestic economy.
This conundrum led me, about two years
ago, to create a composite index of economic indicators that would
provide a much broader view of the domestic economy. The result was the
Economic Output Composite Index (EOCI) which is comprised of the:
- Chicago Federal Reserve National Activity Index - a broad index comprised of 85 subcomponents of the national economy.
- Several Federal Reserve Regional Manufacturing Index (Richmond, Dallas, Kansas, etc.)
- ISM Composite Index - a composite index of the ISM manufacturing and non-manufacturing index.
- Chicago Purchasing Managers Index
- NFIB Small Business Survey
- Leading Economic Indicator index
It has a pretty good mix of different kinds of data. The chart shows that this index has spent quit a bit of time below a critical threshold. This kind of pervasive weakness is normally associated with a recession. While the pundits keep telling me on TV that the economy is getting better, I just can't see it in the data. There is no consistent strength apparent. Even though I can't say for 100% sure we are in a recession, we have to be right on the edge. Anybody that says we are absolutely not in a recession (and there are a lot of them) is cherry picking the data and/or smoking something. With global weakness, tax hikes, spending cuts, and high gasoline prices it will take a miracle to keep us out of recession this year. Stock prices may be starting to reflect that reality so be careful.
Bob
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