Using the Chicago Fed's National Financial Conditions Index To Track the Economy During Shutdown

From Value Walk:

The Federal government is still shutdown, so now seems like a good a time as any to introduce a new U.S. macroeconomic indicator. Let’s dive into the Chicago Fed’s National Financial Conditions Index (NFCI).
This index is published weekly and provides an update on U.S. financial conditions in money markets, debt and equity markets, and the traditional and “shadow” banking systems. The time period covered is through the previous Friday, so this is pretty up-to-date information.

U.S. economic and financial conditions are often highly correlated, so an alternative index is included in the weekly report known as the adjusted NFCI, or ANFCI. This index isolates a component of financial conditions uncorrelated with economic conditions to provide an update on financial conditions relative to current economic conditions.

Both the NFCI and the ANFCI are constructed to have an average value of zero and a standard deviation of one over a sample period extending back to 1973. Positive values of the NFCI indicate financial conditions that are tighter than on average, while negative values indicate financial conditions that are looser than on average. Similarly, a positive value of the ANFCI indicates financial conditions that are tighter on average than would be typically suggested by economic conditions, while a negative value indicates the opposite. More on this in a moment.

Like the Chicago Fed’s National Activity Index (CFNAI), an indicator that we report on here every month, the NFCI is a weighted average of a large number of variables. There are 105 measures of financial activity, with each being expressed relative to their sample averages and scaled by their sample standard deviations. The ANFCI removes the variation in the individual indicators attributable to economic activity and inflation — as measured by the three-month moving average of the CFNAI and three-month percent change in the Personal Consumption Expenditures (PCE) Price Index — before computing the index....MUCH MORE