The latest CFNAI-MA3 reading came in at -0.47 from last weeks -0.26 (revised down from -0.21). This downward jump (and downward revision) naturally has everyone on edge. We are not yet concerned with this reading as it is not being corroborated by any leading indicators. However with the perma-bears now being forced to hang their hats onto the “revisions” coat-hook recently, this reading appears uncomfortably close to the -0.7 recession trigger for those spooked by the perma-bears’ gloomy predictions. We looked at the real-time data published by the Chicago Fed since it has been available from 2002, and compared the real-time published readings to subsequent revisions on/around the last two recessions to see if we have anything to be concerned about.
The 2008 Great Recession shows that data was revised upwards before the CFNAI-MA3 recession trigger was tripped, and revised downwards after the real-time recession trigger was tripped. Revisions to the 85 economic data series before the recession made no impact on the models’ recession dating accuracy. Note that in this recession, the model produced a real-time lag of 3 months (2 months on the chart plus the 1 month data publish lag)
We notice a similar story for the 2001 recession, with subsequent data revisions on the 85 economic data components being upwards prior to the recession trigger being tripped and downwards thereafter.
The lack of any leading indicator confirmation on the weakness of the CFNAI-MA3 (which is effectively a co-incident indicator) coupled with evidence that the last two recessions resulted in UPWARD revisions as opposed to downward ones prior to the recession trigger means we should not be hitting any panic buttons just yet.