Fed Index Points to Slower Growth in April

Jon C. Ogg

Investors overlook the monthly Chicago Fed National Activity Index (CFNAI) readings because it is one of the reports prepared by one regional branch of the Federal Reserve, but it is actually a national index that includes more factors and indicators than any other report on general business conditions. April saw slower growth than March after declines were seen in the production-related indicators. What matters about this report is that it was covering slower economic growth even before the China trade and tariff issues went south.

The index fell to –0.45 in April from a reading of +0.05 in March. Three of the four broad categories of economic indicators decreased from March, and two of them actually made negative contributions to the national index. The index’s three-month moving average, which aims to smooth out monthly volatility and show longer trends, declined to –0.32 in April from –0.24 in March.

Of the 85 individual indicators, 33 made positive contributions and 52 made negative ones. There were 37 that improved from March to April, and 48 indicators deteriorated. Of those indicators that improved, 14 made negative contributions.

The Chicago Fed National Activity Index is a weighted average of 85 existing monthly indicators measuring national economic activity, and the index is constructed to have an average value of zero and a standard deviation of one. As economic activity trends toward growth over time, a positive index reading indicates above-trend growth, and a negative index reading corresponds to growth that is below trend.

The 85 economic indicators come from four broad categories of data: production and income; employment, unemployment and hours; personal consumption and housing; and sales, orders and inventories. Monday’s broader data is shown below:

  • The contribution from production-related indicators to the CFNAI declined to –0.44 in April from –0.04 in March.
  • Industrial production decreased 0.5 percent in April after increasing 0.2 percent in March.
  • The sales, orders, and inventories category made a contribution of +0.01 to the CFNAI in April, down from +0.06 in March.
  • Employment-related indicators contributed +0.04 to the CFNAI in April, up slightly from +0.03 in March.
  • The contribution of the personal consumption and housing category to the CFNAI moved down to –0.05 in April from a neutral value in March.
  • On balance, consumption indicators weakened, pushing down the category’s overall contribution in April.

The CFNAI was constructed using data available as of May 16, 2019, and at that date only 50 of the 85 indicators had been published for April. Because this report is published ahead of the release of some of the actual data, there are sometimes larger revisions than are seen in other numbers. The Chicago Fed noted that March’s monthly index value was revised to +0.05 from an initial estimate of –0.15, and the February monthly index value was revised to –0.57 from last month’s estimate of –0.31.