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Economy in Brief

Chicago Fed National Activity Index Declines Sharply in May
by Tom Moeller  June 21, 2022

• Two of four major components fall.

• Three-month moving average weakens.

The Federal Reserve Bank of Chicago reported that the Chicago Fed National Activity Index (CFNAI) declined to 0.01 during May following a rise to 0.40 in April, revised from 0.47. It was the weakest reading of economic activity since September of last year.

Smoothing out the m/m volatility, the index's three-month moving average fell to 0.20 from 0.40 in April. That was the lowest figure since June 2021. During the last 10 years, there has been 76% correlation between the change in the Chicago Fed Index and quarterly growth in real GDP.

Two of the four index's major components weakened versus April, and two improved. The Personal Consumption & Housing component fell to -0.11 from 0.10. It was the weakest reading since December, down from a high of 0.18 in January. The Production & Income index fell to -0.01 after rising to 0.29 in April. Working the other way, the Sales, Orders & Inventories reading rose to 0.05 last month following three consecutive negative monthly readings. The Employment, Unemployment & Hours figure improved to 0.08 from 0.07.

The diffusion index, which measures the breadth of movement in the component series, fell to 0.27 during May after having reached highs of 0.46 last November and December. Forty-seven of the index components contributed positively to the May index while 38 contributed negatively.

The CFNAI is a weighted average of 85 monthly indicators of national economic activity. It is constructed to have an average value of zero and a standard deviation of one. Since economic activity tends toward trend growth rate over time, a positive index reading corresponds to growth above trend and a negative index reading corresponds to growth below trend. The CFNAI was constructed using data available as of June 17, 2022. May data for 51 of the 85 indicators had been published at that time. For all missing data, estimates were used in constructing the index.

The index is constructed by the Federal Reserve Bank of Chicago. These figures are available in Haver's SURVEYS database.

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