National Economic Growth Slowed in August

The regional branches of the Federal Reserve release regional economic data, but some of the regional banks issue national economic reports. It is those national economic reports that usually stand out in the real U.S. growth story. The Federal Reserve Bank of Chicago showed that its Chicago Fed National Activity Index (CFNAI) indicated slower growth in the month of August.

With a Bloomberg consensus of 0.11, and with the July report being revised to a gain of 0.03 from a −0.01 preliminary reading, the CFNAI came in at −0.31 in August. The report is far worse than expected, but some of it appears to be owed to the impact of Hurricane Harvey. That only sets up what might be a volatile September after the Harvey and Irma impacts were both felt in the month.

Before getting into what each part of the report showed, note that the CFNAI is a weighted average of 85 existing monthly indicators of national economic activity. Those 85 indicators come from four broad categories of data: production and income; employment, unemployment and hours; personal consumption and housing; and sales, orders and inventories. The index was constructed to have an average value of zero and a standard deviation of one. Because economic activity tends toward trend growth rate over time, a positive index implies that growth is above trend and a negative index reading implies that growth is below trend.

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The CFNAI for August showed that two of the four broad categories of indicators decreased from July, and two categories made negative contributions to the index in August. There were 35 of the 85 individual indicators that made positive contributions and 50 indicators made negative contributions to the CFNAI in August. Some 45 indicators improved from July and 40 deteriorated.

The CFNAI was constructed using data available as of September 21, 2017, and 51 of the 85 indicators had been published at that time. Of the four broader sectors, the Chicago Fed said:

The contribution from production-related indicators to the CFNAI decreased to –0.36 in August from +0.03 in July. Total industrial production declined 0.9 percent in August after moving up 0.4 percent in July.

Personal consumption and housing-related indicators also made a negative contribution to the CFNAI in August—unchanged from July at –0.06. Housing starts decreased slightly to 1,180,000 annualized units in August from 1,190,000 in July.

Employment-related indicators contributed +0.05 to the CFNAI in August, down from +0.09 in July. Nonfarm payrolls increased by 156,000 in August after increasing by 189,000 in the previous month.

The sales, orders, and inventories category also made a positive contribution to the CFNAI in August, increasing to +0.06 from –0.04 in July. The Institute for Supply Management’s Manufacturing Purchasing Managers’ Inventories Index rose to 55.5 in August from 50.0 in July.

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