Talking Points:
- Chicago Fed National Activity Index continues to show modest growth
- All 4 contributing categories showed declines compared from January
- The Activity Index is used as a timely proxy for important quarterly GDP figures
The Chicago Fed’s leading indicator of economic strength and inflation showed a slight decrease since January. Three of the four broad contributing categories registered negative readings, whereas all four saw a slight decline from January’s figures. The 3 month moving average that follows the monthly data moved up slightly to -0.07, this suggests economic growth is recovering for the world’s largest economy. That will be confirmed when the BEA releases the official quarter GDP figures on April 28 when the advanced reading for 1Q 2016 is due.
Of the four contributing categories, production declined to -0.21 versus +0.29 in January, and manufacturing increased by 0.2 percent versus a 0.5 percent increase in January. Sales, orders and inventories contributed 0.03 compared to -0.02 in January. Employment provided mixed contributions to the index as civilian employment increased less in February than in January, but non-farm payrolls came in stronger in February than in January. Personal consumption and housing also came in lower compared to their contributions in January, however housing starts came in stronger in February.
The CFNAI presents a meaningful correlation to the official GDP report that investors track closely. Both measure similar components of the economy, however GDP is a quarterly figure whereas NAI is updated monthly, as a result they tend to follow each other. In the chart below you can see the relation between the two series. With regards to the recent climate of economic sentiment, the CFNAI has shown little indication that there are risks of a recession, in fact the 3 month moving average has been moving closer to signaling a pickup in economic growth rather than slowing. Thus, the CFNAI although not boasting robust economic strength, has continued to dispel fears of either a recession or crippling economic weakness that has spurred risk aversion and Fed policy ceiling concerns.
