It may not get as much attention as the monthly employment report or GDP figures, but the U.S. Federal Reserve Bank of Chicago’s gauge of the national economy has a good track record of distinguishing economic expansions from recessions. And it’s suggesting that the U.S. recovery may be wobbling.

Over at the econbrowser blog, economist James Hamilton points us to a recent research paper that examines how accurate the various economic indicators are at telling us when the economy is growing or contracting. The Chicago Fed’s national index was one of the best. And Monday’s report shows it faded in October.

Not only that, but its three-month moving average fell to -0.91 in October from -0.67 in September, declining for the first time in 2009. That drop was especially significant because the Chicago Fed says a move below -0.70 in the three-month moving average following a period of economic expansion indicates an increasing likelihood that a recession has begun.

Of course, the people who are tasked with determining when recessions begin and end haven’t called the latest one over yet. So is this report showing a speed bump on the way to a recovery or something more ominous?  

BELLA VISTA, Arkansas – For a man who has had his salary cut 10 percent and now has to work hard to make it to his next paycheck, Denny Robertson is in a philosophical frame of mind.

“I have had to learn to live with less. But I have shelter and I have food, so I have everything I need," he said. "It’s uncomfortable to run out of money before the next paycheck, but we’ll get by.

Robertson, 34, is a product engineer at tool maker Kennametal Inc. at a facility in nearby Rogers. Facing the longest and deepest recession since the 1930s, earlier this year the company laid off some staff locally and – in a bid to preserve jobs – gave others one week of furlough, or unpaid leave, every month.

After five months of that, however, the company gave salaried staff a 10 percent pay cut instead in order to keep the facility open at all times.

“If the economy shows signs of improvement then my salary will go back up,” Robertson said. “But I’m not holding my breath that the economy is improving and I’m not banking on it.”

“I keep hearing that the economy is recovering but I just don’t see it.”

Robertson and his wife Rebecca have two young daughters and have had to rethink their budget.

“We have picked up some good habits because of my situation,” he said, speaking at his home in this leafy small town in northwest Arkansas, which is just a few miles from the home of low-cost retail giant Walmart in Bentonville. “We eat out less and I have become more disciplined at making my own lunches for work rather than eating fast food every day.”

As a result, he has lost 20 pounds this year without any additional exercise. The Roberstons also now buys second-hand clothing and with the holidays coming up is planning to buy gifts only for children in their extended family – they will make cookies and other gifts themselves for the adults.

Robertson has stopped paying into his 401(k) retirement savings plan and the family now relies on credit cards only for emergencies.

“The credit cards are only for unexpected things,” he said. Recently his two daughters came down with the H1N1 virus and even with his healthcare coverage he had to charge co-payments and prescriptions to his credit card.

Robertson said that living with less has made him appreciate his church even more and he has raised his tithe payment to the church to 10 percent of his income.

“Even once my salary rises I’ll continue to do that,” he said. Another thing he said that will continue is that he intends to live within his means and not buy into America’s consumer culture any more.

He said that his church has members who are children of the Great Depression and this downturn has taught to appreciate what they went through growing up.

“In one way this recession may be a good thing for my generation,” Robertson said. “Perhaps this is what we need to build a little character.”

“We don’t have to have the latest TV to enjoy life,” he said. “Sure, I’d like to have that TV. But unless I can pay for it in cash, I’m not going to buy it.”

Photos by Lucy Nicholson

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Talk about a disconnect.

Experts say U.S. economic growth has returned, signaling the end of the longest and deepest recession since the Great Depression.

But the good news for Wall Street -- where shares have been running up -- is showing no signs of trickling down to Main Street, where unemployment is flirting with 10 percent, foreclosures continue to rise and record numbers of families now depend on government-issued food stamps to make ends meet.

"For every person out of work, for every family facing foreclosure, for every small business facing a credit crunch, the recession remains alive and acute," U.S. Treasury Secretary Timothy Geithner said in testimony to a congressional committee.

"Many people you might have called middle class or working class before have been ground down toward poverty or even destitution," said author Barbara Ehrenreich, who has chronicled America's working poor during her career.

While most Americans either fret about a job loss or deal with the financial devastation of joblessness, the income gap between the super rich in the United States and the average Joe is the largest since the 1920s. Nearly one-sixth of the U.S. population is uninsured. And, contrary to popular belief, Americans are less likely to move to a higher financial status than people who live in "socialist" countries like Germany, Canada, France or Sweden.

Many economists, who warn that the U.S. economy is in for a "jobless recovery," caution that the turnaround is on fragile ground.

"Sure the economy's standing up on its own legs again, but for how long once the government stimulus starts to fade?  That's the million dollar question for the nation's unemployed, all 15.1 million of them sitting idle through no fault of their own," said Chris Rupkey, an economist with Bank of Tokyo-Mitsubishi in New York.

"We've got a long way to go," U.S. President Barack Obama said.

(Additional reporting by Emily Kaiser; Reuters photo)

The latest Blue Chip survey of economists is out this morning, and there’s general agreement on one point: the longest recession since the Great Depression is about to end, if it hasn’t already. Some 87 percent of the economists surveyed thought the National Bureau of Economic Research will eventually declare the recession ended prior to the end of September.

What happens next is up for debate. The survey found that about 16 percent expect a strong V-shaped recovery. An equal percentage expects a W-shaped double-dip recession. Most economists — about 65 percent — were lumped in the middle, looking for a long, slow U-shaped recovery.

They also seem to think that last Friday’s jobs report, which showed the jobless rate dipped for the first time in 15 months, was just a head-fake. The consensus view is that unemployment peaks at 10.2 percent, compared with the current level of 9.4 percent, and nearly half thought that level would be reached in the first quarter of 2010.

So, what’s your take? Pick a letter, any letter, but if you choose something other than L, V, U or W, you’ll have to explain it.

If the Hollands Wood campsite in the New Forest, near England’s south coast is anything to go by, the recession really is altering the holidaymaking habits of the British public.

On the often rain-sodden site three Porches, a couple of Jaguars and numerous BMWs and Mercedes were spotted among the more typical, Skodas and Ford Mondeos usually associated with roughing it under canvas.

Unlike for the same period last year, the campsite was solidly booked out, despite no sign of the barbecue summer the weathermen promised.

One camper, Sarah, a senior publishing executive gave some clues to explaining the popularity of the cost-effective approach to getting away from it all.

“I’ve had a bonus every year for the last 15 years, until this year. I used it to pay off my credit card bills and then start again on the next year’s spending which included the holiday.”

It was the first ever experience for her family of five on a campsite and it was a bit less upmarket than last year’s holiday spent in a gite in the fashionable French Dordogne.

But the dark cloud of a severly impared income and a soggy English holiday had one silver lining.

“It has reminded me of the truth that all my four year old needs is a stick and a puddle to be truly happy.”

(Reuters photo: Eddie Keogh, Glastonbury 2005)

Fears of the swine flu are rising and some doomsayers compare the pandemic with the Spanish flu outbreak in 1918, which infected a quarter or even half of the world’s population and claimed more than 40 million lives– or 2 percent of the then 2 billion global population.

However, French bank BNP Paribas says comparisons with the Spanish flu seem excessively pessimistic and the damage to annual global GDP growth this time would be around 1-2 percentage points.

It does warn however that a severe pandemic could cause a second year of global recession in 2010.

“The vast majority of the impact on the level of output should prove temporary and most of the ground lost should be made up in the following 2-3 years,” the bank says in a client note.

MacroScope is pleased to post the following from guest blogger Julian Chillingworth. Chillingworth is chief investment officer of UK investor Rathbones. He questions here whether Britain will face a second downturn shortly after struggling out of recession.

Are we likely to witness a two-tier recession in the UK?  Perhaps not a recession but certainly a secondary downturn. A vast number of people have enjoyed lower mortgage payments and a level of job security, but will this last?

The UK is in somewhat of a unique position in so far as it faces a regime change, with some obvious ramifications for policy.  However, whoever takes the seat (most likely the Tories) must still cut back public expenditure and raise taxation, both within the context of high unemployment.

It will require the wisdom of Solomon as a further rise in unemployment hits tax-take and results in rising social security payments. Who would want to be George Osborne?!

Key will also be the state of the financial services industry, the banks – other G7 nations do not have the ‘core component’ element to deal with in this respect – and the consumer won’t be moved in any meaningful fashion until there is real evidence of stability there.

Economic news is improving, but in the near term sentiment will be led by the direction of earnings.

The bottom line is the US might be troughing out, but this time round, we in the UK could be on our own for a little while longer.

May’s U.S. trade figures have economists feeling quite a bit better about second-quarter GDP. The surprising strength in exports should provide a big lift.

JPMorgan economist Michael Feroli thinks trade may contribute almost 2 percentage points to second-quarter growth, and he adjusted his Q2 GDP forecast to a  much-less-dire decline at a 0.5 percent annual rate from his earlier view of -2.0 percent. Goldman Sachs economist Jan Hatzius is also looking at a less-ugly Q2.

“Absent significant downside surprises in either retail sales or business inventory data next week, this report suggests that our standing estimate for real GDP in Q2 — down 3 percent at an annual rate — is too negative,” he wrote in a note to clients.

Of course, considering that the rest of the world is also in a recession, it begs the question — where are these exports going?

Three things for the economy-minded to be doing on a Friday in July:

– Study a very, very clever interactive graphic from the New York Times showing that the business cycle is far from round. Here.

– Marvel at one of the Centre for Economic Policy Research’s new papers — either “The Potato’s Contribution to Population and Urbanization” or “Kinky Choices, Dictators and Split Might: A Non-Cooperative Model for Household Consumption and Labor Supply”.

– Come up with a new visual metaphor for the direction of the global economy. We have had L, U, V and W. Most recently we have heard of the Nike Swoosh and saxophone-shaped recovery (with the flat mouthpiece heading off into the distance).

If you have another one, or something else to while away a Friday, share it.

Britain’s recession, like the downturns in most other places, is being hailed as either having reachえｄ bottom or tailed off in its decline. The latest to trumpet the beginning of the end is the British Chambers of Commerce, which said business orders and sales had continued to fall in the second quarter but at a slower pace than previously.

So does this mean that the Bank of England will soon start raising interest rates from the negligible 0.5 percent reached last year as policymakers sought to pump liquidity into a failing economy? Not according to researchers Capital Economics, which argues in a new report that market assumptions of higher rates at an early stage are misplaced. They offer three reasons:

– A return to strong levels of activity and rapid price gains in the housing market is unlikely for some time, even at very low interest rates. Meanwhile, the overall economy is likely to expand at only sluggish rates in the foreseeable future. And even if the recovery continues to gather pace, the large amount of spare capacity - or slack - in the economy suggests that there should be no hurry to tighten policy at all.

– Even when monetary policy is finally tightened, some part of this will involve the reversal of the Bank of England’s quantitative easing programme. Although the likely order of events is far from clear, this could delay the need for a conventional tightening in the form of higher interest rates.

– Thirdly, there is good chance that monetary policy in general takes a back seat to a substantial tightening of fiscal policy as the government responds to the growing pressure to sort out the public finances. This is likely to take the form both of higher taxes and a severe squeeze on public spending and would require monetary policy to be kept correspondingly loose to prevent the economy from slipping back into recession.

So, essentially, the BoE will not be able to raise rates because a) the economy is a long way from good b) it has other things to unwind first and c) life is going to be so miserable for Britons that low interest rates will be their only salvation.

This latter point is beginning to excerise a lot of thought in Britain, with the head of the Audit Commission criticising politicans for failing to be honest about the need for cutbacks, given a forecasted £175 billion public deficit this year — more than 12 percent ofgross domestic product.

“People had better understand this is an unprecedented situation. We have never seen anything like this in your lifetime or mine,” Former prime Minister John Major, who knows quite a bit about crises, told TV presenter Andrew Marr.

(Reuters photos: Eddie Keogh and Darren Staples)