Indicator Of Indicators Indicating Recession

A little-known indicator known as the Philly Fed ADS Business Conditions Index gives an excellent insight into the performance of the economy. The index, which takes into consideration six key factors, tracks much of the same data the NBER, the organization that officially calls recessions, tracks. The ADS takes into consideration:

• weekly initial jobless claims         
• monthly payroll employment         
• industrial production         
• personal income less transfer payments         
• manufacturing and trade sales         
• quarterly real GDP

As you can see in the following chart, the ADS has been on a negative trajectory since 2010 and is currently in recessionary territory.

Indeed, this second chart, a historical snapshot of ADS covering 50 years, shows that the ADS has never had a clear long-term negative trajectory without the NBER officially declaring recession: (Recessions shaded in gray.)

The ADS is only the latest indicator that suggests to me that we will experience a brief, relatively mild recession beginning in Q1 of next year.