Broad Fed Index Points Toward Further Economic Growth in December

January 28, 2019 by Jon C. Ogg

The Chicago Fed National Activity Index (CFNAI) is not one of the larger market-moving releases each month, but it is a national economic reading rather than just a regional one. The CFNAI rose slightly in December, up to +0.27 from +0.21 in November, and it was led by improvements in production-related indicators.

According to the data, two of the four broad categories of indicators that make up the index increased from November, and two of the four also made positive contributions to the index. It was also shown that 46 of the 85 individual indicators made positive contributions to the CFNAI in December, and 39 individual indicators made negative contributions.

There is also a three-month moving average, which some may tie to gross domestic product for the fourth quarter given it is a December-end reading. The three-month moving average rose to +0.16 in December from +0.12 in the prior month.

The CFNAI was constructed using data available as of January 24, 2019. While two of the four broader categories were positive, the Federal Reserve Bank of Chicago noted that there were some deficiencies in the data as federal agencies had to postpone certain economic releases due to the impact of the partial federal government shutdown. As far as where the strengths and weaknesses were seen, the Chicago Fed’s report said:

The contribution from production-related indicators to the CFNAI increased to +0.22 in December from +0.02 in November. Manufacturing industrial production rose 1.1 percent in December after edging up 0.1 percent in November. The sales, orders, and inventories category made a neutral contribution to the CFNAI in December, down from +0.12 in November… Employment-related indicators contributed +0.11 to the CFNAI in December, up slightly from +0.10 in November… The contribution of the personal consumption and housing category to the CFNAI edged down to –0.06 in December from –0.03 in November.

The 85 economic indicators that are included in the CFNAI are drawn from four broad categories of data: production and income; employment, unemployment and hours; personal consumption and housing; and sales, orders and inventories. The CFNAI methodology for how to read the report:

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.

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