This morning the Federal Reserve Bank of Chicago released its January National Activity Index — an excellent barometer of national economic health. The report made large upward revisions to previous estimates of November and December. So I expect an upward revision to Q4 2012 GDP from the previous -0.1% to something like +0.5% to be announced by the BEA at some point.

As of October 2012, the rolling sum of Chicago Fed index data was -2.3.The previous recession began when the Chicago Fed index saw a rolling sum of -2.42. So we probably flirted with a flat-lining economy in Q4, but probably not outright contraction.

These graphs show a rolling monthly reading of 3-month averages. The “economic damage” is a sum of the rolling monthly values beginning with an initial month exhibiting negative readings. (In mathematical parlance, the red area on the graph is the integral of the function. You knew that grade 12 math was going to come in handy at some point.)

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FYI: I expect the economy to stagnate in Q1 2013, and begin to contract in Q2 as the effects of fiscal contraction begin to take their toll. Here’s my forecast for the Chicago Fed index. (January is the last known point on the graph, the rest are estimates.)

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Much has been made of the stock market’s ability to see the future. If the above recession estimate is close to correct (May 2013), then it would be reasonable to expect the stock market to top-out in the February-April timeframe.   You might also expect a leading stock market risk indicator to be showing a warning sign in February.  Hmmmm.

Food for thought.