Despite Rising COVID-19 Cases, Chicago Fed Shows National Economic Recovery Continuing Into Summer

The Federal Reserve Bank of Chicago issues regional data about the local economy, but it also has a monthly release called the Chicago Fed National Activity Index (CFNAI). As the name suggests, this is a national economic reading, and it is meant to measure dozens of key portions of the economy. After a rise in May, the index suggests that economic growth further increased during June.

The CFNAI rose to 4.11 in June from 3.50 in May. Also worth noting is that May’s reading was revised from a prior 2.61.

There is a take here that may not be quite as evident in the month ahead. The overall trends were better in enough categories that the July data may not be as soft as it might seem today, with some regional pressures about slowing down the COVID-19 case growth as group gatherings are being discouraged and as more measures are taken to fight the big rise in COVID-19 cases.

The gains for June were led by improvements in production and in the employment-related indicators. More importantly, three of the index’s four broad categories made positive contributions in June. On top of that, two of the four broad categories showed improvements from May. Some 54 of the 85 individual indicators made positive contributions in June, and just 31 made negative contributions.

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The four categories covered in this index are 1) production and income; 2) employment, unemployment and hours; 3) personal consumption and housing; and 4) sales, orders and inventories.

Production-related indicators contributed +2.22 to the index in June, up from +0.84 in May. The category for sales, orders, and inventories moved down to –0.24 in June from +0.04 in May. Employment-related indicators contributed +1.74 to the index in June, up marginally from +1.73 in May. The contributions from personal consumption and housing was positive at +0.40 in June, but that was lower than the +0.89 contribution in May.

While this is not as widely followed as some indexes, and while the data is now three weeks behind, the CFNAI is a weighted average of 85 existing monthly indicators covering the national economy. Any reading that is above zero generally corresponds to growth “above trend.” A negative index reading generally indicates that growth is below trend.

The index is suggesting that the recovery was continuing even as the coronavirus cases increased after the reopening of the economy. That said, many aspects of the regional economies already have been dialed back late in June or in early July as a means of fighting COVID-19 cases growth. How that plays out for July data remains to be seen.

Economists and pundits alike are still at odds over whether the economic recovery will be V-shaped (a rapid return to growth and normality), a U-shaped recovery (very weak recovery) or an L-shaped one (long recession followed by a recovery down the road). There is also, of course, fear of a double-dip or W-shaped economy, in which a recovery is followed by a rapid decline that in this case would be due to the second wave of COVID-19 cases.

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