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Short Looks At U.S. National Activity

Published 07/22/2013, 09:32 AM
Updated 07/09/2023, 06:31 AM

According to the Chicago Fed's National Activity Index, June economic activity slightly improved from May, now at -0.13, up from May's -0.29 (an downward revision from -0.30). This is the second consecutive month with "slightly improved" as the official summation. However, this index has been negative (meaning below-trend growth) for thirteen of the past sixteen months.

Here are the opening paragraphs from the report:
Led by improvements in production-related indicators, the Chicago Fed National Activity Index (CFNAI) increased to -0.13 in June from -0.29 in May. Two of the four broad categories of indicators that make up the index increased from May, and two of the four categories made positive contributions to the index in June.

The index's three-month moving average, CFNAI-MA3, increased to -0.26 in June from -0.37 in May, marking its fourth consecutive reading below zero. June's CFNAI-MA3 suggests that growth in national economic activity was below its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year.

The CFNAI Diffusion Index increased to -0.03 in June from -0.19 in May. Forty-one of the 85 individual indicators made positive contributions to the CFNAI in June, while 44 made negative contributions. Forty-two indicators improved from May to June, while 41 indicators deteriorated and two were unchanged. Of the indicators that improved, 13 made negative contributions. [Download PDF News Release]


Investing.com had forecast a 0.0 for today's number.

The Chicago Fed's National Activity Index (CFNAI) is a monthly indicator designed to gauge overall economic activity and related inflationary pressure. It is a composite of 85 monthly indicators as explained in this background PDF file on the Chicago Fed's website. The index is constructed so a zero value for the index indicates that the national economy is expanding at its historical trend rate of growth. Negative values indicate below-average growth, and positive values indicate above-average growth.

The first chart below shows the recent behavior of the index since 2007. The red dots show the indicator itself, which is quite noisy, together with the three-month moving average (CFNAI-MA3), which is more useful as an indicator of the actual trend for coincident economic activity.
National Activity Since 2007
For a broad historical context, here is the complete CFNAI historical series dating from March 1967.
National Activity Since 1967
The next chart highlights the -0.7 level. The Chicago Fed explains:
In The Fed's Own Words
The next chart highlights the -0.70 level and the value of the CFNAI-MA3 at the start of the seven recessions during the timeframe of this indicator. The 1973-75 event was an outlier because of the rapid rise of inflation following the 1973 Oil Embargo. As for the other six, we see that all but one started when the CFNAI-MA3 was above the -0.70 level.
CFNAI-MA3 Levels At Start Of Last 7 Recessions
The next chart includes an overlay of GDP, which reinforces the accuracy of the CFNAI as an indicator of coincident economic activity.
The CFNAI And GDP
Here's a chart of the CFNAI without the MA3 overlay — for the purpose of highlighting the high inter-month volatility. Consider: the index has ranged from a high 2.64 to a low of -4.90 with a average monthly change of 0.61. That's 8% of the entire index range! The latest reading is a month-over-month change of 0.16, well below the average volatility.
The CFNAI And High Inter-Monthly Volatility
Further underscoring the volatility is the roller-coaster list of CFNAI monthly headlines from 2011 forward.
CFNAI Monthly Headlines Since 2011
As the monthly chart depicts and the headline verbs reinforce, it's unwise to read very much into the data for any specific month. Also data revisions frequently make the real-time headline subsequently inaccurate. The three-month moving average is a better number to watch.

The Long-Term Economic Trend
In the final chart I've let Excel draw a linear regression through the CFNAI data series. The slope confirms the casual impression of the previous charts that National Activity, as a function of the 85 indicators in the index, has been declining since its inception in the late 1960s, a trend that roughly coincides with the transition from a good-producing to a post-industrial service economy in the information age.
National Activity Decline Since Late 1960s
For a more detailed perspective on long-term economic trends, see my latest Understanding the CFNAI Components, which I update and post a few hours after the CFNAI is released.

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