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Economy in Brief

U.S. Economic Momentum Lost: Chicago Fed Index Reverses Seven Months Of Improvement
by Tom Moeller July 26, 2010

Economic activity began this summer on a sour note. The June National Activity Index (CFNAI), reported by the Chicago Fed, fell to -0.63 which was the lowest level since last October. Moreover, prior months' improvement was hardly indicative of a gangbuster economic recovery, but this latest reading supports the message from other economic series that the current recovery has hit a soft patch.  Nevertheless, the index remained up from it low of -4.12 reached in January '09. During the last ten years the has been a 76% correlation between the index level and the q/q change in real GDP.

The three-month moving average of the index, which smoothes out some of the series' volatility, also fell to its lowest level since February.

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 3.0%. The complete CFNAI report is available here.

The Chicago Fed indicated that the loss of forward momentum was broad based amongst the component series, but most notable in the job market indicators and the production & income readings which went negative after months of positive values. Thirty-six of the 85 individual indicators made positive contributions to the index in June, while 49 made negative contributions.Twenty-nine indicators improved from May to June, while 56 indicators deteriorated.

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 May to its highest level since December 2008. Indicators for the steel, machinery and resource sectors each rose. The Chicago Federal Reserve figures are available in Haver's SURVEYS database.

Chicago Fed June May April June '09 2009 2008 2007
CFNAI -0.63 0.31 0.16 -1.72 -1.57 -1.83 -0.34
  3-Month Moving Average -0.05 0.31 0.04 -2.11 -- -- --
    Personal Consumption & Housing -0.43 -0.45 -0.38 -0.43 -0.45 -0.30 -0.08
    Employment, Unemployment & Hours -0.13 0.08 0.23 -0.80 -0.77 -0.68 -0.16
    Production & Income -0.11 0.61 0.22 -0.25 -0.21 -0.60 -0.05
   Sales, Orders & Inventories 0.05 0.06 0.08 -0.22 -0.13 -0.25 -0.06
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