Chicago Fed Details a Slowing Economy

Chicago Fed details:

The index’s three-month moving average, CFNAI-MA3, decreased to –0.05 in June from +0.31 in May. The CFNAI-MA3 suggests that growth in national economic activity returned veryclose to its historical trend in June after reaching its highest level since March 2006 in May. With regard to inflation, it indicates subdued inflationary pressure from economic activityover the coming year.

Production-related indicators made a contribution of –0.11 to the index in June, down from +0.61 in May. Industrial production edged up 0.1 percent in June after increasing 1.3 percent in May; manufacturing production declined 0.4 percent in June after increasing 1.0 percent in the previous month.

Source: Chicago Fed

Chicago Fed National Activity Declines in February

Reuters details what the index shows:

Zero values in the index indicate a national economy expanding at historical trends, while negative values indicate below-trend growth and positive values signal growth above trend, the Chicago Fed said. The 85 economic indicators that comprise the Chicago Fed's index are drawn from four categories: production and income; employment, unemployment and hours; personal consumption and housing; and sales, orders and inventories. The three-month moving average provides a more consistent picture of national economic growth compared to the more volatile monthly index.

And the three month average fell to -0.64 in February from -0.04 in January (i.e. below trend growth).



Source: Chicago Fed

Chicago Fed National Activity Index Pointing to More Muddle

Modern Distribution Management with the nice recap of yesterday's release (traveling all week so expect some untimely posts):

The Chicago Fed National Activity Index was -0.90 in August, down from -0.56 in July. Three of the four broad categories of indicators made negative contributions to the CFNAI in August; the production and income category made a positive contribution to the index for the second consecutive month.

The three-month moving average, CFNAI-MA3, improved for the seventh consecutive month. At -1.09 in August (up from -1.61 in the previous month), the CFNAI-MA3 suggests that growth in national economic activity was below its historical trend. With regard to inflation, the amount of economic slack reflected in the CFNAI-MA3 indicates low inflationary pressure from economic activity over the coming year.

The production-related indicators made a smaller positive contribution of 0.29 to the index in August compared with 0.45 in July. Industrial production increased 0.8 percent in August, down slightly from 1.0 percent in the previous month; and manufacturing production increased 0.6 percent in August after rising 1.4 percent in July. July and August marked the first consecutive increases in industrial production since November and December 2007.

For more on the linkage between the rolling three-month figure and GDP go here.

Source: Chicago Fed

Chicago Fed National Activity = Gettin' There

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