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US National Activity Index Shows Growth with Tailwinds from Trade Ahead

US National Activity Index Shows Growth with Tailwinds from Trade Ahead

Peter Hanks, Strategist

Talking Points:

  • Fifty of the eighty-five economic indicators made positive contributions in April
  • Production related indicators contributed with a bump to 0.27 for the index, up from 0.19
  • The seemingly resolved US-China trade war has dominated headlines and market action

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The Chicago Fed’s US-based National Activity Index came in at 0.34 for April, beating March’s reading of 0.32. The economic enthusiasm this infers has furthered optimism in US capital markets and the Dollar recently spurred by a ‘pause’ on the China trade war and steady rise in Fed rate forecasts. The index is made up of the weighted average of 85 economic indicators, with positive growth listed as anything above 0.0. Readings below 0.0 are considered a sign of contraction and a three month average of readings below negative 0.70 signals a recession. In April, 50 of the 85 indicators made positive contributions with production-related indicators, namely factories, leading the way.

The positive contributions made by factories for the month of April rose to 0.27, an increase from the 0.19 contributed by the indicator in March. Similarly, employment-related indicators added to their contributions in April, rising to 0.10 from 0.04. The rise in the employment-related indicator trails the data released by the Labor Department earlier this month revealing 3.9% unemployment, the lowest in 17-years. Meanwhile, a key negative contributor was the personal consumption and housing category, dropping to negative -0.05 from 0.02 as construction on new homes dropped 3.7% in April.

Although the index delivered a positive message for markets, the tentative resolution of the US-China trade war dominated markets and drove them higher in the early hours of trading. Should the resolution hold, the trade talks will provide meaningful action for the index in the coming months, as increased factory production was a headline goal set out by the Trump administration. Similarly, renewed or increased trade from the resolution will aid the index in other indicators.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.