Chicago Fed National Activity Index Ticked Higher in October, But Still Negative

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The Chicago Federal Reserve bank has released its National Activity Index showing a better reading for October versus September. The report was still negative at -0.08, but this is better than the -0.23 reading measured in September. While most regional bank branches of the Federal Reserve cover only regional reporting, this is a national view. It should also be kept in mind that this is economic data covering the pre-election time period.

All four broad categories of indicators that make up the index increased from September. Unfortunately, all of those four categories again made non-positive contributions to the index in October.

The index’s three-month moving average edged down to –0.27 in October from –0.20 in September. What this translates to for investors and economic watchers is that growth in national economic activity was somewhat below its historical trend. Also worth noting is that this suggests subdued inflationary pressure from economic activity over the coming year.

Another issue to consider in the national activity reading is that the Diffusion Index, also a three-month moving average, decreased to -0.35 in October after having been –0.16 in September.

There were only 34 of the 85 individual indicators which made positive contributions in October — versus 51 making negative contributions. There were 50 of the 85 indicators which improved from September to October, while 34 indicators deteriorated and just 1 of the 85 was unchanged. Of the indicators that improved, 21 made negative contributions.

Of the major indicators right now, the markets often focus most closely on inflation and employment measures. The Chicago Fed report did not make any major price commentary but it said:

Employment-related indicators made a neutral contribution to the CFNAI in October, up slightly from –0.01 in September. The civilian unemployment rate fell to 4.9 percent in October from 5.0 percent in September; but nonfarm payrolls increased by 161,000 in October after increasing by 191,000 in the previous month.

The Chicago Fed National Activity Index is a weighted average of 85 existing monthly economic indicators. It is constructed to have an average value of zero and a standard deviation of one. A positive index reading corresponds to growth above trend, while a negative index reading corresponds to growth below trend.