Chicago Fed National Activity Index Rose in September, but Still Under Trend

The Federal Reserve Bank of Chicago has released the Chicago Fed National Activity Index (CFNAI) for September. While this is a regional bank reporting the data, it is a national index tracking all around the nation, rather than just in this one Fed district. It is also one of the last national growth and business reports ahead of this Friday’s key report on gross domestic product.

Led by improvements in production-related indicators, the CFNAI rose to −0.14 in September. The reading was down at −0.72 in August.

Monday’s report showed that all four broad categories of indicators that make up the index increased in September from August. Still, all four categories were also listed as being negative contributions to the index for the second straight month.

The CFNAI Diffusion Index is a three-month moving average, and it moved down to –0.12 in September from –0.03 in August. Some 41 of the 85 individual indicators made positive contributions to the CFNAI in September, and 44 individual indicators made negative contributions. Also, 67 indicators improved from August to September, and 17 indicators deteriorated, with one unchanged. Of the indicators that improved, 29 made negative contributions.

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Below is a breakdown of some of the key points from monthly data:

• The contribution from production-related indicators to the CFNAI rose to –0.01 in September from –0.39 in August.
• Manufacturing industrial production rose by 0.2 percent in September after falling 0.5 percent in August; and manufacturing capacity
  utilization ticked up to 74.9 percent in September from 74.8 percent in August.
• The sales, orders, and inventories category also made a contribution of –0.01 to the CFNAI in September, up from –0.06 in August.
• Employment-related indicators contributed –0.03 to the CFNAI in September, up from –0.15 in August.
• Civilian nonagricultural employment increased by 442,000 in September after decreasing by 37,000 in August; but the civilian unemployment rate ticked up to 5.0 percent in September from 4.9 percent in the previous month.
• The contribution of the personal consumption and housing category to the CFNAI edged up to –0.09 in September from –0.12 in August.
• Housing permits increased to 1,225,000 annualized units in September from 1,152,000 in August.
• However, housing starts decreased to 1,047,000 annualized units in September from 1,150,000 in the previous month.

As far as why investors and economic watchers would care about this reading, the CFNAI is a weighted average of 85 existing monthly indicators of national economic activity. Readings above zero represent broader growth, and those below zero resemble relative contraction or growth that is below trend. The 85 economic indicators that are included come from four broad categories of data: production and income; employment, unemployment and hours; personal consumption and housing; and sales, orders and inventories.

Investors and economists should also consider that the Chicago Fed National Activity Index was constructed using data available as of October 20, 2016. At that time, the September data for 51 of the 85 indicators had been published.

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