Marginal Thoughts (a Chicago Fed based blog by Cindy Ivanac-Lillig) explains:
The CFNAI is a weighted average of 85 indicators of national economic activity. The CFNAI measures how far above, or how far below, our historical long-term growth rate we are performing. It has an impressive track record of correlating to quarterly real GDP growth (which makes it something of a coincident indicator-- an indicator that shows the current temperature of the economy).Indeed. The chart below shows the three month rolling average of the Chicago Fed National Activity Index vs. the QoQ change in GDP.
And while Reuters reports that:
The Chicago Fed targets a level of 0.20 in the three-month average to suggest a recession is over.a much lower figure than 0.20 appears necessary to show "growth" on a quarter over quarter basis (what the chart indicates it that the average quarter over quarter growth over the past 40'ish years is 1% quarter over quarter or ~4% annually).
If one were to expect real growth in the 2-3% per year (0.50-0.75% QoQ) on a forward looking basis, expect the Chicago Fed National Index to remain negative for some time to come. That said, based on July's "jump" in the CFNA, expect GDP growth a rebound above 0.00% in Q3.
Source: Chicago Fed