September readings for the Philadelphia Fed survey of state coincident indicators are now out. The 3-Month Index has turned to follow the Monthly Index upward. Reversal of the Monthly Index below 80, however, would be cause for concern.
When we look at the index over the last 30 years, down-turns of the Diffusion Index below 50 normally precede a recession. The only false signal (so far) was the recent 2011 dip of the Monthly Index (DI1) to 20 and the 3-Month Index (DI3) to 46.
The Federal Reserve Bank of Philadelphia calculates monthly coincident indexes for each of the 50 states. The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic: nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.
For further details of Diffusion Index performance in predicting recessions, read Marking NBER Recessions with State Data by Jason Novak (2008).