Chicago Fed National Activity Index Inched Up in December
by:Sandy Batten
|in:Economy in Brief
Summary
- But the index remained below zero for the second consecutive month.
- Three-month average weakened toward recession territory.
- Activity/employment dichotomy clearly visible.
The Federal Reserve Bank of Chicago reported that its National Activity Index (CFNAI) inched up to -0.49 in December from -0.51 but was well below the neutral 0.00 reading in October. The release of the index after October had been temporarily suspended due to inaccuracies in some of the source data. The December CFNAI was constructed using data available as of January 23, 2023. December data for 51 of the index’s 85 components were available. The November monthly index value was revised to -0.51 from an initial estimate of -0.36, and the October monthly index value was revised to a neutral value from the previous estimate of -0.01.
Due to the index’s monthly volatility, financial markets and researchers focus on the index's three-month moving average. That fell to -0.33 in December from -0.14 in November and +0.09 in October. This index is expressed in standard deviation units from zero (with a value of zero defined as trend real GDP growth). Research at the Federal Reserve Bank of Chicago indicates that a reading on the three-month average of -0.70 or below is consistent with the economy being in a recession. So clearly, the December reading does not indicate that the economy is currently in a recession, but the marked decline over the past two months does point to increased recession risk.
The dichotomy between a slowing economy yet a historically tight labor market was clearly visible in the sector data. Production-related indicators contributed -0.43 point to the overall December reading while employment-related indicators added 0.02 point to the December value.
The diffusion index, which measures the breadth of movement in the component series, fell to -0.13 in December from 0.00 in November. Forty of the 85 individual indicators made positive contributions to the CFNAI in December, while 45 made negative contributions. Forty-four indicators improved from November to December, while 40 indicators deteriorated, and one was unchanged. Of the indicators that improved, 17 made negative contributions.
The CFNAI is a weighted average of 85 monthly indicators of national economic activity. It is constructed to have an average value of zero and a standard deviation of one. Since economic activity moves toward trend growth rate over time, a positive index reading corresponds to growth above trend and a negative index reading corresponds to growth below trend.
The index is constructed by the Federal Reserve Bank of Chicago. These figures are available in Haver’s SURVEYS database.
Sandy Batten
AuthorMore in Author Profile »Sandy Batten has more than 30 years of experience analyzing industrial economies and financial markets and a wide range of experience across the financial services sector, government, and academia. Before joining Haver Analytics, Sandy was a Vice President and Senior Economist at Citibank; Senior Credit Market Analyst at CDC Investment Management, Managing Director at Bear Stearns, and Executive Director at JPMorgan. In 2008, Sandy was named the most accurate US forecaster by the National Association for Business Economics. He is a member of the New York Forecasters Club, NABE, and the American Economic Association. Prior to his time in the financial services sector, Sandy was a Research Officer at the Federal Reserve Bank of St. Louis, Senior Staff Economist on the President’s Council of Economic Advisors, Deputy Assistant Secretary for Economic Policy at the US Treasury, and Economist at the International Monetary Fund. Sandy has taught economics at St. Louis University, Denison University, and Muskingun College. He has published numerous peer-reviewed articles in a wide range of academic publications. He has a B.A. in economics from the University of Richmond and a M.A. and Ph.D. in economics from The Ohio State University.
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