Chicago Fed: Recession Chances Rise

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Tuesday April 3 10:57 AM ET Chicago Fed: Recession Chances Rise

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 (news - web sites) 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 January.

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. http://dailynews.yahoo.com/h/nm/20010403/bs/fed_chicago_dc_3.html

-- Carl Jenkins (somewherepress@aol.com), April 03, 2001


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