Several Indices of MidwestEconomic Activity Improve; August PMI Moves To Break-Even

Middle America finally appears to be emerging from its sharp recession. Reporting this morning, the Chicago Purchasing Managers Association indicated that its August Business Barometer Index rose to 50, at the break-even level for the first month since last September. The increase was led by a rise in the orders and production components that breached 50 for the first month since June of last year. In addition, the order backlogs index surged to its highest level since last September. The employment series also gained but only back to its December level. The Chicago PMI figures are diffusion indexes and are available in Haver's SURVEYS database.

In a separate report issued last week, the Chicago Federal Reserve Bank reported that the National Activity Index (CFNAI) rose in July to the highest level since January of last year. The reading of -0.74 was up from June and both figures were higher than the series' low of -3.99 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. The three-month moving average of the index also improved to its highest level since August. 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 production and income components made the largest positive contributions to the July CFNAI. Thirty-five of the index components had a positive influence on the overall index while 50 had a negative influence. These figures contrast to last month's report on June activity when 22 of the index components had a positive influence while 63 made a negative contribution. 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 yet a third survey, the Chicago Fed indicated that its Midwest manufacturing index improved slightly during July and recovered declines during the prior two months. Nevertheless, the figure remained near the lowest since 2003. Indicators for the auto and steel sectors rose while machinery fell. The Chicago Federal Reserve figures also are available in Haver's SURVEYS database.

Clearing and settlement of exchange traded derivatives from the Federal Reserve Bank of Chicago can be found here.  

India's real gross domestic product rose 6.1% in the second quarter from the second quarter of 2008, up from the 5.8% year over year growth in the first quarter. It was the first acceleration in growth since the fourth quarter of 2007 when the global recession began to affect the Indian economy. Among the industries contributing to the acceleration in growth were manufacturing, mining and quarrying, electricity gas and water and the service industries covering trade, hotels, transport and communications. The year to year growth in these industries is shown in the first chart.

Earlier this year, the Reserve Bank of India forecasted that the economy would increase 6% in the fiscal year ending March 2010 while the Federal Government was estimating growth between 6.25% and 7.75%. Since then, the weak summer monsoon, reducing prospects for agriculture output, has cast doubts on these projections, Although agriculture has been declining in importance in the Indian economy for years (as can be seen in the second chart), it still accounts for a slightly larger portion of the economy than manufacturing. In fiscal 2008, agriculture accounted for 17% of total GDP and manufacturing for 15%. Agriculture output increased 2.4% in the second quarter over the corresponding period of 2008, down from the 2.7% increase in the first quarter. The recent announcement by the Farm ministry that 44% of the 625 administered districts reported drought or drought like conditions suggests a grim outlook for agriculture in the third quarter.