Economy

Chicago Fed Shows National Activity Ticked Up In October, But Still Negative

Jon C. Ogg

Published: November 23, 2015 10:18 am

Last Updated: January 13, 2020 4:52 pm

The Chicago Fed National Activity Index (CFNAI) is a national report that is put together by a regional Federal Reserve branch, so it does have a broader merit than some of the other regional Fed reports. The problem with this report is that it is backward looking by one month. Another issue is that much of the data is already known or can be generally estimated ahead of time.

What stands out in Monday’s report for the month of October is that much of the negativity that had been seen in August and September seems to be abating. Again, much of the negativity – but very far from all of that negativity. Improvements were seen in the employment-related and in the production-related indicators.

Monday’s report showed that the CFNAI rose to –0.04 in October. This is still technically negative, but it is handily higher than the –0.29 report that had been seen in September. The actual report’s headline data did say that the ‘index shows economic growth improved in October. Also seen in the report was that the September -0.29 reading had been revised from a preliminary report of -0.37.

The CFNAI index is a weighted average of 85 indicators of national economic activity drawn from four broad categories of data. These are the following: 1) production and income; 2) employment, unemployment, and hours; 3) personal consumption and housing; and 4) sales, orders, and inventories.

Two of the four broad categories of indicators that make up the index increased in October versus September. That being said, only one category made a positive contribution to the index in October.

Another issue to consider here is that the broader timeline trend remains cautious. That is after seeing that the index’s three-month moving average decreased to –0.20 in October from –0.03 in September. Again, the big drops were in August and September on most Fed reports. October’s 3-month average suggests that growth in national economic activity was somewhat below its historical trend.

Also shown in the report was that economic growth reflected in this level of the 3-month average suggests subdued inflationary pressure from economic activity over the coming year. While most Fed presidents are suggesting that December looks to be the time to raise interest rates, they still have little to no inflationary pressure close to the 2.0% to 2.5% range that the Fed has a target for inflation.

The CFNAI Diffusion Index, which is also a three-month moving average, was shown to have decreased to –0.18 in October from –0.07 in September.

It remains interesting that the Fed showed an improvement in growth in its headline. After all, 41 of the 85 individual indicators made positive contributions to the CFNAI in October. There were 44 individual indicators which made negative contributions. Maybe the Fed’s ‘growth’ optimism came from 46 of the 85 indicators showing improvement from September to October — but 39 indicators deteriorated from the levels seen in September. Also, of the indicators that did improved there were 16 which made negative contributions.

The CFNAI is an interesting report, but investors assume that this report would have to contain massive changes to ever create a significant move in the market versus other key economic reports.