Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050127d.jpg" width="353">
The National Activity Index (CFNAI) compiled by the Federal Reserve Bank of Chicago recovered to 0.39 last month from a downwardly revised 0.05 in November.A zero value of the CFNAI indicates that the economy is expanding at its historical trend rate of growth.
The recovery raised the three-month moving average of the CFNAI to 0.33, its highest level since July.
The CFNAI is a weighted average of 85 indicators of economic activity. The indicators reflect activity in the following categories: production and income, the labor market, personal consumption and housing, manufacturing and trade sales, and inventories &amp; orders.
During the last twenty years there has been a 74% correlation between the level of the CFNAI and q/q growth in real GDP.
The latest CFNAI report is available <a href="http://www.chicagofed.org/economic_research_and_data/files/cfnai_january2005.pdf">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S503/@S503.HTM">Chicago Fed</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Dec &#39;03</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
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<td class="firstcol">CFNAI</td>
<td>0.39</td>
<td>0.05</td>
<td>0.20</td>
<td>0.34</td>
<td>-0.11</td>
<td>-0.40</td>
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The National Activity Index (CFNAI) compiled by the Federal Reserve Bank of Chicago recovered to 0.39 last month from a downwardly revised 0.05 in November.A zero value of the CFNAI indicates that the economy is expanding at its [...]

Chicago Fed Nat'l Activity Index Recovered

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The Industrial Materials Price Index from the Foundation for International Business and Economic Research (FIBER) rose 0.6% (0.4% y/y) during the four weeks ended March 7, 2025, adding to gains early in the year. Weakness during the latest two weeks, however, pulled the index to the lowest level since early February.

Prices in the Metals group led the increase and rose 3.5% (9.4% y/y) over the most recent four weeks. Tin prices increased 5.4% (18.4% y/y) while copper scrap costs rose 5.1% in four weeks (12.0% y/y). The cost of lead climbed 3.1% (-3.0% y/y) and zinc prices increased 3.1% (16.3% y/y) in four weeks. Steel scrap costs rose 2.9% (-3.1% y/y) and aluminum costs moved up 1.5% (21.0% y/y) in four weeks.

Prices in the Miscellaneous group increased 1.2% during the last four weeks and rose 4.3% y/y. Framing lumber prices jumped 11.1% over the last four weeks and increased 12.8% y/y. Offsetting this rise, natural rubber prices declined 2.6% (+4.9% y/y) in four weeks. Hide prices held steady over the same period (+7.8% y/y).

Offsetting these gains, prices in the Crude Oil & Benzene group declined 3.7% (-12.6% y/y) in the latest four weeks. The cost of West Texas Intermediate crude oil slumped 5.8% to $67.81 per barrel and was 14.1% lower y/y. The cost of the petro-chemical benzene, used for making plastics & synthetic fibers, fell 7.5% (-33.1% y/y) in the last four weeks. Excluding crude oil, the industrial commodity price index rose 1.0% (1.3% y/y).

Textile group prices weakened 0.6% (-4.9% y/y) in the latest four weeks. Burlap costs fell 2.2% (+11.7% y/y) in four weeks and the cost of cotton fell 2.0% (-32.5% y/y).

The Foundation for International Business and Economic Research (FIBER) develops economic measurement techniques as applied to business cycles and inflation in the U.S. and other market economies. The commodity price data can be found in Haver's **DAILY**, **WEEKLY**, **USECON** and **CMDTY** databases.

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- Metals prices lead the increase.
- Lumber prices strengthen.
- Crude oil prices decline sharply.

FIBER: Industrial Commodity Price Index Edges Higher

Michael J. Moran

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The January report on consumer credit included a marked adjustment to data for December, as the Federal Reserve reduced the volume of outstanding credit in that month by $115.8 billion, which left a month-to-month _**decline**_ of 23.6% (annual rate). The adjustment involved an obvious break in the series because the Fed also publishes percent changes that are adjusted for breaks, and this measure was sharply out of line with the published levels (showing a _**gain**_ of 8.7%). The balance of this review is based on a level series created by Haver Analytics using the break-adjusted percent changes published by the Fed.

Consumer credit rose $18.1 billion in January, which translates to growth of 4.3% (annual rate). This reading was firm relative to most observations in the past year, and it followed a surge of 8.7% in December. Both revolving credit (primarily credit cards) and other borrowing contributed to the recent strength. The past two months might be seen to signal an acceleration in growth, but November was weak, declining at an annual rate of 3.3%. The average gain in the past three months totaled 3.2%, which was in line with the performance of the past year. Thus, we view recent monthly shifts as random volatility rather than an underlying pickup.

While recent monthly changes do not seem to represent a fundamental shift, underlying credit patterns have fluctuated widely in recent years. Households paid down substantial amounts of debt during the pandemic, as lock downs limited spending options and as financial support from the federal government provided the wherewithal to pare obligations. Aggregate pay downs largely ceased in mid-2020, but Individuals continued to manage debt cautiously through mid-2021. Individuals then borrowed aggressively during the latter part of 2021 and 2022 before gradually easing the pace in 2023 and 2024.

The changing patterns of debt use in the past several years has led to sharp changes in the financial position of the household sector. The debt pay downs and cautious borrowing during the pandemic and its aftermath led to a sharp reduction in the debt-service burden (i.e. required debt payments as a percent of disposable personal income; see chart). Service burdens picked up as borrowing accelerated in 2021 and 2022, although they remain comfortable relative to pre-pandemic norms and they are light relative to readings from 2005 through 2010 (the series started in 2005).

The debt burden measure does not raise deep concern about financial stress in the household sector, although delinquency rates on consumer loans at commercial banks are less comforting. Late payments have picked up in recent years and have moved above levels seen just before the pandemic. While notable, the pickup in late payments is not especially alarming. The uptrend in delinquencies has slowed recently, now largely moving sideways, and late payments are below levels seen before the recession that began in 2008.

The consumer credit figures from the Federal Reserve Board are break-adjusted and calculated by Haver Analytics. The breaks in the series in 2005, 2010 and 2015 are the result of the incorporation of data from the Census and the Survey of Finance Companies, as well as changes in the seasonal adjustment methodology. The consumer credit data are available in Haver’s **USECON** database. The Action Economics forecast figures are contained in the **AS1REPNA** database.

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- Underlying trend remained moderate.
- Measures of stress have deteriorated, but not to alarming levels.

Consumer Credit: A Rebound in December and January After a Soft November

Tian Yong Woon

This week, we look again at US tariff policy and explore its potential implications for Asia, particularly China and South Korea. While US President Trump has temporarily dialled back his actions on Canada and Mexico, he has moved forward with doubling the tariff rate on China to 20%. However, China’s trade data have already started to exhibit more fragility (chart 1), and lingering uncertainties are also beginning to affect other trade-dependent economies, such as South Korea (chart 2). To make matters worse, South Korea is grappling with significant political uncertainty at home, with much-needed fiscal support still in limbo. This only adds to the policy uncertainty it faces (chart 3). We also take a closer look at the key messaging coming out of China’s National People’s Congress, which began last Wednesday. Notably, China reaffirmed its commitment to an annual growth target of "around 5%" (chart 4), supported in part by more expansionary fiscal policy (chart 5). Additionally, we examine China’s increased focus on shifting toward a more consumption-driven economy and the associated challenges (chart 6). This shift seems increasingly necessary, given the potential decline in export revenues due to more protectionist US policies.

**The US’ latest tariff actions**
Last week, US President Trump proceeded with the implementation of blanket 25% tariffs on Canada and Mexico, following a prior delay. Additionally, he doubled import tariffs on China, increasing them from 10% to 20%. However, he later provided an interim reprieve for goods covered under the United States-Mexico-Canada Agreement (USMCA), delaying some tariffs on Canada and Mexico until April 2. In response, China swiftly retaliated by imposing tariffs ranging from 10% to 15% on US agricultural products, among other countermeasures. It is important to note that China's response to the US's broad tariffs has been relatively restrained. In terms of numbers, China’s export growth has already slowed amid heightened trade uncertainty, as shown in chart 1. This slowdown is partly due to the easing of growth following prior front-loading of exports, as well as a decline in imports driven by softer demand.

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The uncertainties stemming from US tariff actions are starting to hit trade-dependent South Korea hard too. In February, the country’s export growth fell short of expectations, and industrial production contracted during the same period, as shown in chart 2. South Korea faces a challenging road ahead, weighed down by both external and internal factors. Externally, the nation must contend with the potential impact of escalating US tariffs, which pose a significant threat to trade-reliant economies like South Korea. Domestically, political instability is growing due to the fallout from former President Yoon's martial law declaration. This situation further compounds uncertainty, with attention now shifting to the government’s supplementary budget and its potential to support growth. 

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In response to the fragile outlook, the Bank of Korea (BoK) lowered its policy rate by 25 basis points to 2.75% in February, as expected. This marks the second rate cut since the policy rate peaked at 3.5% in 2023. Of greater concern, however, is the BoK’s revised GDP forecast for 2025, which now projects growth of 1.5%, down from the 1.6-1.7% range previously forecast in January. Economic policy uncertainty is rising globally, not just in South Korea, as shown in chart 3. Investors are struggling to predict how policies will unfold in the US and how other economies will respond to mitigate the negative effects of these actions. However, South Korea’s situation is particularly acute due to its domestic political challenges. With the government’s supplementary budget still uncertain, the near-term future of the South Korean economy depends on securing much-needed fiscal support. This makes the uncertainty in South Korea especially pronounced.

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**China’s National People’s Congress**
Turning back to China, despite the potential growth-dampening effects of US policies and other risks, the country has once again set its annual growth target at "around 5%." This target was announced during China’s annual National People’s Congress, which began last Wednesday. Investors are now closely watching for specific policy details on government measures to support growth and address China’s ongoing challenges. An early indicator of China’s approach is the budget deficit target of 5.7 trillion yuan ($790 billion), or about 4% of GDP this year—up from 3% last year and marking the largest deficit in more than 30 years. This suggests the government is prepared to significantly increase spending to support the economy. For context, China achieved exactly 5% growth last year, largely driven by a strong Q4 performance as stimulus measures took effect. Ironically, this growth was also supported by a front-loading of imports in anticipation of potential US trade moves.

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While China’s increased government spending to boost growth may ease some investor concerns, several lingering questions remain. Two key issues are worth highlighting here. First, it remains uncertain whether the added government spending will be enough to fully offset the impact of US policies, especially if they persist or, worse, escalate. Second, while the short-term boost may help China’s near-term growth, the larger budget deficit means China will incur more debt (chart 5), exacerbating a longer-term issue. That said, this challenge of balancing short-term needs with long-term sustainability is faced by all economies, not just China. Sometimes, addressing immediate priorities requires compromising on longer-term outcomes—it’s a delicate balancing act.

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China has also strongly expressed its desire during the NPC to pivot toward a more consumption-driven economy. This goal ties into efforts to increase the consumption share of GDP and its contribution to overall GDP growth. However, China’s consumption share remains well below that of its peers, with investment and net exports still significant drivers of growth (chart 6). The challenge for China’s government lies in how to rebalance the economy without causing too much short-term pain. One potential approach would be to empower the Chinese consumer by raising wages and boosting purchasing power, particularly among low-income groups. However, while this could elevate living standards, it would also make workers more expensive, pushing up labour costs for businesses and potentially reducing their competitiveness. That said, these higher labour costs could be offset by corresponding gains in productivity. The key question then becomes: how can authorities achieve productivity improvements that align with rising wages?

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Asia

Economic Letter from Asia: Tit for Tat

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Nonfarm payrolls increased 151,000 (1.3% y/y) during February after rising 125,000 in January, revised from 143,000, and 323,000 in December, revised from 307,000. Expectations had been for a 160,000 rise in the Action Economics Forecast Survey. The latest figure left the three-month average change at 199,700 in February, down from 236,300 in January.

Average hourly earnings rose 0.3% during February after increasing 0.4% in January, revised from 0.5%. These increases came after a 0.2% December rise, revised from 0.3%. Earnings growth of 4.0% y/y remained up from 3.6% in July, but below the 5.9% high in March 2022. A 0.3% February increase had been expected.

The unemployment rate, measured in the household survey, edged up to 4.1% last month and reversed the January dip to 4.0%. The Action Economics Forecast Survey expected 4.0%. It reached a low of 3.5% in July of 2023. The unemployment rate, including employees working part-time for economic reasons plus all marginally-attached workers, rose to 8.0% from 7.5%.

In the **payroll survey**, private-sector employment rose 140,000 (1.2% y/y) in February following an 81,000 January gain. Construction sector employment increased 19,000 (2.0% y/y) last month after rising 2,000 in January. Factory sector payrolls gained 10,000 (-0.7% y/y) after falling 5,000 in January.

Private service-producing employment increased 106,000 (1.4% y/y) last month after increasing 88,000 in January. Increases varied greatly amongst service sector categories. Private education & health service jobs rose 73,000 (3.5% y/y) while trade, transportation & utilities employment rose 21,000 (1.0% y/y). Financial activities jobs rose 21,000 (1.0% y/y) and information sector employment rose 5,000 last month (-0.3% y/y). Leisure & hospitality employment fell 16,000 (+1.5% y/y) while professional & business service jobs declined 2,000 (-0.4% y/y). Temporary help services jobs weakened 12,300 (-5.6% y/y).

Government sector payrolls increased 11,000 (1.5% y/y) in February after rising 44,000 in January. Local government jobs improved 20,000 (1.5% y/y) last month while state government employment rose 1,000 (2.2% y/y). The number of federal government jobs declined 10,000 (+0.5% y/y).

The 0.3% February rise in private-sector average hourly earnings reflected a 0.3% gain (4.2% y/y) in the goods-producing sector. Earnings in construction improved 0.2% (4.2% y/y) last month and factory sector earnings rose 0.4% (4.2% y/y). In the private services sector, earnings rose 0.3% (4.0% y/y) after rising 0.4% in January. Information sector earnings held steady (4.6% y/y) and professional & business service-sector earnings rose 0.3% (5.1% y/y). Trade, transportation and utilities pay improved 0.3% (2.7% y/y). Leisure & hospitality earnings rose 0.3% (3.7% y/y). Financial sector earnings increased 0.5% (4.2% y/y) while private education & health services earnings edged 0.1% higher (4.1% y/y).

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The length of the average workweek in the private sector held at 34.1 hours last month. The workweek in the goods-producing sector was steady at 39.7 hours for the fifth straight month. The construction sector average workweek eased to 38.6 hours from 38.8 hours. The factory sector workweek was 40.1 hours for the fourth consecutive month while average weekly overtime hours edged up to 2.9	 hours. The average workweek in the private service sector held at 33.1 hours. The aggregate weekly hours index in the private sector, a key indicator of production and income, rose 0.1% last month (0.6% y/y) after a 0.2% decline in January.

In the **household survey**, the rise in the jobless rate to 4.1% in February from 4.0% in January reflected a 588,000 decline in employment which followed a 2.234 million January rise. The labor force fell 385,000 last month following a 2.197 million January increase. The unemployment rate for teenagers rose to 12.9%, while for individuals aged 20-24, the rate increased to 8.3%. The jobless rate for workers aged 25-54 edged up to 3.5% but for workers 55 and over, it eased to 2.9% in February.

The labor force participation rate fell to 62.4% during February, the lowest level since January 2023. The employment/population ratio for all workers fell to 59.9% in February. It remained below its high of 61.1% in February 2020, just prior to the pandemic.

The employment and earnings data are collected from surveys taken each month during the week containing the 12th day of the month. The labor market data are contained in Haver's **USECON** database. Detailed figures are in the **EMPL** and **LABOR** databases. The expectations figures are in the **AS1REPNA** database.

**Economic Outlook** is the title of today’s speech by Fed Chair Jerome H. Powell and it can be found [here](https://www.federalreserve.gov/newsevents/speech/powell20250307a.htm).

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- Job gains remain up from last summer.
- Recent trend in earnings growth remains slightly improved.
- Jobless rate is close to mid-point of past year’s range.

Chicago Fed Nat'l Activity Index Recovered

Summary

Tom Moeller

More Economy in Brief

FIBER: Industrial Commodity Price Index Edges Higher

Consumer Credit: A Rebound in December and January After a Soft November

Economic Letter from Asia: Tit for Tat

U.S. Payroll Employment Growth Picks Up in February, but Earnings Gain Eases & Unemployment Rate Edges Higher