More Fed Data Point to Slowing Economic Recovery

The Federal Reserve Bank of Chicago creates regional reporting about its own Fed district, but it also produces a monthly report called the Chicago Fed National Activity Index (CFNAI). This national report declined to 0.79 in August from 2.54 in July.

Econoday’s consensus estimate was higher at 1.88, and Dow Jones had a 1.20 consensus posted ahead of the report.

While there was growth within the production-related indicators, only two of the four broader categories used to construct the index managed to show positive contributions in August, and all four categories were lower in August than they were in July.

The Chicago Fed showed that 45 of the 85 individual indicators made positive contributions in August, while the other 40 made negative contributions. Of the indicators that improved, 11 of them still made negative contributions.

Some economic reports are narrow in their scope, but the Chicago Fed National Activity Index is a weighted average of 85 existing monthly indicators from national economic activity. While the data is broken out individually, most of it has been seen ahead of time from individual reports. The four broad economic categories are as follows:

  • Production and income
  • Employment, unemployment and hours
  • Personal consumption and housing
  • Sales, orders and inventories

Production-related indicators contributed 0.23 to the CFNAI in August. While positive, that was down from a 1.26 reading in July. The report noted that industrial production increased 0.4% in August, after rising 3.5% in July. The contribution of the sales, orders and inventories category fell into the red to –0.04 in August, after a reading of 0.53 in July.

Employment-related indicators came in at 0.63 to the monthly index, after a 0.65 reading in July. The report showed that nonfarm payrolls rose by 1.4 million in August, after increasing by 1.7 million in July. The unemployment rate fell by 1.8 percentage points in August, after falling 0.9 percentage points in July.

The contribution of the personal consumption and housing category moved down to –0.04 in August, after posting a 0.09 reading in July. The Fed highlighted that housing starts fell to 1,416,000 on an annualized basis in August, after having been 1,492,000 units in July.

While much of the individual data is already known ahead of time, this index is constructed to have an average value of zero. As economic activity tends toward positive growth over time, a positive index reading generally corresponds to growth above-trend growth. A negative index reading generally corresponds to below-trend growth.

This index is not known for making huge ripples in the financial markets, but the index does echo the ongoing trend of a slowing economic recovery that was seen in August. It also may confirm some of that slowness in the recovery that is being seen in September

The Dow Jones industrials and S&P 500 were both down almost 2% right at the opening bell on Monday, with the tech-heavy Nasdaq down about 1.5%.