Fed Data Still Shows Weaker Growth in September

The various branches of the Federal Reserve generally issue regional economic reporting, but the Federal Reserve Bank of Chicago releases a National Activity Index that is used to track the broader economy. September’s growth rate did stay positive, but there was a significant slowing compared with August.

According to the Chicago Fed, the economy saw further moderation in the growth from the production-related and employment-related indicators. Monday’s report showed that three of the four broad categories of indicators used to construct the index made positive contributions in September, but three of the four broad categories also decreased from August.

The Chicago Fed National Activity Index fell to 0.27 in September from 1.11 in August. While a drop was expected, the August reading was revised up to 1.11 from a prior 0.79 reading, and the Econoday consensus estimate was 0.39.

The cut-off date for constructing the index was October 22, 2020. September data were available for 51 of the 85 indicators, and estimates of the missing data were used in constructing the index.

To construct the index, the Chicago Fed uses a weighted average of 85 monthly indicators covering the national economy. This national activity index was constructed to have an average value of zero, but it also notes that economic activity tends toward trend growth over time. A positive index reading generally corresponds to above-trend growth, and a negative index reading corresponds to below-trends growth.

Production-related indicators contributed –0.24 to the index in September, down from 0.31 in August, showing a decline in industrial production. The contribution to the index from sales, orders and inventories dipped to 0.07 in September from a 0.10 reading in August.

September’s employment-related indicators contributed 0.35 to the index, down by more than half of the 0.71 reading in August after payroll growth was smaller. The contribution of the personal consumption and housing category rose to 0.09 in September, after a neutral value in August as housing starts rose.

While this is a national index, there are already much more current data showing October business trends. The Chicago Fed National Activity Index is rarely a major market-moving economic report due to the long look-back on the data.