Chicago Fed Index Points to Weak Economic Conditions
The National Activity Index of The Federal Reserve Bank of Chicago dropped to minus 0.73 in October from a revised minus 0.3 in the prior month. The Chicago Fed National Activity Index (CFNAI) is a weighted average of 85 indicators drawn from four categories of data: (1) production and income, (2) employment, unemployment, and hours, (3) personal consumption and housing, and (4) sales, orders, and inventories. Of these four categories, three of them – production, employment, and consumption and housing – made negative contributions to the index in October. The sales, orders, and inventories made a very small positive contribution of 0.01 after a minus 0.04 contribution in September.
The 3-month moving average declined to minus 0.56 in October from minus 0.25 in September. The 3-month moving average reduces the volatile that may be seen in the monthly readings. The current reading of this average is lowest for the current cycle, excluding the 2003 readings when the Iraq invasion commenced (see chart 1) and it has been negative for fourteen straight months. A negative reading of the index indicates below-average growth and “when the 3-month moving average of the CFNAI moves below minus 0.70 following a period of economic expansion, there is an increasing likelihood that a recession has begun.” The current reading of the 3-month moving average (-0.56) signals below trend growth with a strong likelihood of a recession in the months ahead.
