Chicago Fed Saw Stronger National Activity in June

The Federal Reserve Bank of Chicago may be a regional branch of the Federal Reserve, but the group releases a national economic tracker called the Chicago Fed National Activity Index. This index has four broad categories and a weighted average from a total of 85 existing monthly indicators. Three of those four categories posted sequential gains into June.

The report sounds strong on the surface, but the ratio of improving to deteriorating might still signal some slack to some readers. Also note that the index has almost a full month on its look back, versus some of the more live readings.

The four broad categories of data are as follows:

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

The Chicago Fed National Activity Index rose to an expansionary reading of +0.13 in June, up from −0.30 in May. All four broad categories of indicators that make up the index posted improvements from May, and the three production-related indicators led the way to the monthly recovery.

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Of Thursday’s report, 40 of the 85 individual indicators made positive contributions to the index in June, and 45 individual indicators made negative contributions. Of the 85 in all, 56 individual indicators showed an improvement and 28 deteriorated from May to June (with just one unchanged). Of the indicators that improved, 21 made negative contributions.

The contribution from production-related indicators rose to +0.09 in June, up from −0.16 in May. Of the larger gains, total industrial production and the ISM readings on manufacturing were cited for their contribution.

The sales, orders and inventories category made a contribution of +0.02 to the index after a neutral contribution in May. Employment-related indicators contributed +0.06 to the index in June, up from −0.05 in May. The contribution of the personal consumption and housing category to the index rose to −0.04 from −0.09 in May.

The Chicago Fed National Activity Index was constructed using data available as of July 20, 2017. At that time, June data for 51 of the 85 indicators had been published.

As far as how to interpret the Chicago Fed National Activity Index, a positive index reading corresponds to growth above trend and a negative index reading corresponds to growth below trend.

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