Chicago Fed: Chances of Recession Higher

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Thursday May 31 10:39 AM ET

Chicago Fed: Chances of Recession Higher

WASHINGTON (Reuters) - Although it remains unlikely the U.S. economy has slid into a recession, chances of such a contraction rose last month, the Federal Reserve (news - web sites) Bank of Chicago said on Thursday.

The Chicago Fed said its National Activity Index slid to -1.09 last month from -0.87 in March. The April reading was the lowest since the economy began slowing last July and marked the 10th straight month the index was below zero, an indication of below-trend growth.

The three-month moving average index, which smoothes out month-to-month fluctuations, also fell, reaching -0.96 in April, down slightly from -0.94 in March.

The Chicago Fed said the negative monthly values in the index, a weighted average of 85 economic indicators, suggests the economy faces a greater risk of recession.

``It remains likely that the U.S. economy is not currently in a recession. Nevertheless, the April index indicates a greater risk that the U.S. economy is in a recession than in the first three months of this year,'' the regional Fed said. It noted that the April reading continues to be above levels hit during the five recessions the United States experienced in the last four decades, but said the three-month average indicates a growing recession risk.

``Historical experience indicates an increasing probability of a recession as the (three-month average) falls deeper into and below the range of -0.70 and -1.00,'' the Chicago Fed said.

The three-month average has been below -0.70 since December.

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 Chicago Fed said the manufacturing sector continued to be the ``major source'' of weakness in its index. Sharp losses in employment also contributed to the decline.

Strength in consumer spending and in the housing sector, however, continued to support the ailing economy, the regional Fed said.

A year ago, when the U.S. economy was flying high and the biggest concern was inflation, the monthly index was +0.28 while the three-month average was +0.27.

The Chicago Fed index is a reading based on 85 economic indicators that cover areas including production, income, employment, consumption, housing and manufacturing.

-- (M@rket.trends), June 01, 2001


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