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Economy in Brief

Chicago Fed Index Slips Further
by Tom Moeller   October 25, 2010

In another sign of weakness in the U.S. economy, the Chicago Fed National Activity Index (CFNAI) fell further last month to its lowest level since February. Moreover, it was near its lowest level of the economic recovery. The decline to -0.58 was from an upwardly revised -0.49 during August. (Earlier figures reflect updated seasonal factors.) The latest reading further indicated that forward momentum behind the U.S. recovery has waned considerably. The three-month moving average of the index, which smoothes out some of the series' volatility, held roughly stable at -0.33, its lowest level since December.

Since these figures remain up from the low of -3.66 reached in January '09, they still represent improvement. 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. During the last ten years it's had a 78% correlation with the quarterly growth in real GDP.

The CFNAI is a weighted average of 85 indicators of economic activity. The Chicago Fed indicated that September deterioration resulted from declines in the values for production & income as well as sales, orders & inventories. The other component series were roughly flat. Month-to-month deterioration in the sub-series was balanced. Forty of the 85 individual indicators made positive contributions to the index in September, while 45 had a negative effect. The Fed also indicated that 41 indicators improved from August to September, while 44 indicators deteriorated and one was unchanged.

In a separate survey, the Chicago Fed indicated that its Midwest manufacturing index during August slipped from July which was its highest since December 2008. Indicators for the auto sectors deteriorated while others covering the steel, machinery and resource sectors improved modestly. The Chicago Federal Reserve figures are available in Haver's SURVEYS database.

Chicago Federal Reserve Bank September August July Sept. '09 2009 2008 2007
CFNAI -0.58 -0.49 0.09 -0.65 -1.55 -1.85 -0.29
 3-Month Moving Average -0.33 -0.32 -0.17 -0.44 -- -- --
    Personal Consumption &
-0.39 -0.40 -0.43 -0.56 -0.44 -0.29 -0.09
    Employment, Unemployment &
-0.05 -0.06 0.12 -0.43 -0.77 -0.67 -0.16
    Production & Income -0.17 -0.02 0.26 0.23 -0.21 -0.60 -0.05
    Sales,Orders & Inventories 0.05 -0.01 0.14 0.13 -0.11 -0.28 -0.03
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