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Economy in Brief

Chicago Fed Index Eases Again Pointing Towards Softer GDP Growth
by Tom Moeller November 23, 2009

The upward momentum in the U.S. economy sagged during the last few months. That's the message from lower readings of the Chicago Fed National Activity Index (CFNAI) from the Federal Reserve Bank of Chicago. The index slipped again m/m after having improved sharply from the January low. The October reading of -1.08 was off slightly from -1.01 during September. Nevertheless, both figures are greatly improved from the series' low of -4.13 reached this past January. Since 1970 there has been a 74% correlation between the level of the index and the q/q change in real GDP but during the last ten years that correlation has risen to 80%.

The three-month moving average which smoothes out some of the volatility of the index also slipped m/m but remained near its highest level since February of 2008.

An index level at or below -0.70 typically has indicated negative U.S. economic growth. A zero value of the CFNAI indicates that the economy is expanding at its historical trend rate of growth of roughly 3%. The complete CFNAI report is available here.

The Chicago Fed indicated in its data release that the level of the CFNAI "indicates low inflationary pressure from economic activity over the coming year."

The Chicago Fed indicated that 32 of the series' individual indicators made positive contributions to the October index while 53 made negative contributions. The CFNAI is a weighted average of 85 indicators of economic activity. The indicators reflect activity in the following categories: production & income, the labor market, personal consumption & housing, manufacturing & trade sales, and inventories & orders.

In a separate survey, the Chicago Fed indicated that its Midwest manufacturing index improved during September after an upwardly revised August reading. As a result, a discernable uptrend in the index now is evident versus the June low. Indicators for the auto, steel, and resource sectors improved while the reading for the machinery sector hit a new low. The Chicago Federal Reserve figures are available in Haver's SURVEYS database.

Rescuing asset-backed securities markets from the Federal Reserve Bank of Chicago is available here.

Chicago Fed October September August October '08 2008 2007 2006
CFNAI -1.08 -1.01 -0.63 -1.48 -1.77 -0.35 0.05
  3-Month Moving Average -0.91 -0.67 -0.94 -2.31 -- -- --
    Personal Consumption & Housing  -0.52 -0.61 -0.38 -0.46 -0.33 -0.10 0.06
    Employment Unemployment & Hours -0.46 -0.60 -0.53 -0.77 -0.62 -0.15 0.01
    Production & Income -0.07 0.23 0.53 0.07 -0.55 -0.05 -0.01
    Sales, Inventories & Orders -0.02 -0.04 -0.25 -0.31 -0.24 -0.06 -0.01
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