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Economy in Brief

Chicago Fed Index Reverses Earlier Improvement
by Tom Moeller  December 20, 2010

The Chicago Fed reported that its National Activity Index (CFNAI) fell last month to -0.46 and reversed most of its October increase. The index remained down sharply since its March peak, suggesting that the economy's recovery has lost forward momentum. The three-month moving average of the index, which smoothes out some of the series' volatility, held roughly stable at -0.41, its lowest level since November of last year.

An index level at or below -0.70 typically has indicated negative U.S. economic growth. A zero value of the CFNAI suggests that the economy is expanding at its historical trend rate of growth. During the last ten years it's had an 82% 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 November's deterioration was primarily limited to the labor market series. Other indicators were either stable or improved, i.e., the production & income series. Thirty-five of the 85 individual indicators made positive contributions to the index in November, while 50 had a negative effect. The Fed also indicated that 31 indicators improved from October to November, while 54 indicators deteriorated.

In a separate survey, the Chicago Fed indicated that its Midwest manufacturing index during October improved m/m but remained down slightly from its July high, its highest since December 2008. Indicators for the steel & machinery sectors, autos and resources each ticked up. The Chicago Federal Reserve figures are available in Haver's SURVEYS database.

How do sudden large losses in wealth affect labor force participation? from the Federal Reserve Bank of Chicago is available here.

Chicago Federal Reserve Bank Nov Oct Sep Nov'09 2009 2008 2007
CFNAI -0.46 -0.25 -0.51 0.01 -0.86 -1.85 -0.29
 3-Month Moving Average -0.41 -0.42 -0.29 -0.50 -- -- --
  Personal Consumption & Housing -0.42 -0.40 -0.38 -0.37 -0.44 -0.29 -0.09
  Employment, Unemployment & Hours -0.16 0.10 -0.04 0.00 -0.78 -0.67 -0.14
  Production & Income 0.08 -0.02 -0.07 0.25 -0.21 -0.60 -0.05
  Sales, Orders & Inventories 0.04 0.07 -0.03 0.15 -0.11 -0.28 -0.03
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