Chicago Fed National Activity Index Declines in December

Led by declines in employment-related indicators, the Chicago Fed National Activity Index decreased to -0.61 in December, down from -0.39 in November. Three of the four broad categories of indicators that make up the index moved lower, although both the production and income category and the sales, orders, and inventories category made positive contributions.

In contrast to the monthly index, the index's three-month moving average, CFNAI-MA3, increased slightly to -0.61 in December from -0.68 in November. December's CFNAI-MA3 suggests that growth in national economic activity was below its historical trend; but the level of activity remained in a range historically consistent with the early stages of a recovery following a recession. With regard to inflation, the amount of economic slack reflected in the CFNAI-MA3 indicates low inflationary pressure from economic activity over the coming year.

The decline in the monthly index was driven mainly by decreases in employment-related indicators. These indicators as a group made a contribution of -0.27 to the index in December, down from -0.11 in November. Payroll employment declined by 85,000 in December after increasing by 4,000 in November; however, the unemployment rate was unchanged at 10.0%.

Most of the weakness in the index continued to stem from the consumption and housing category. This category's contribution to the index was -0.50 in December, down slightly from -0.46 in November. Housing starts declined to 557,000 annualized units in December from 580,000 in November. Partially offsetting this was an increase in building permits to 653,000 annualized units in December from 589,000 in the previous month.

Production-related indicators made a positive contribution to the index for the sixth consecutive month. As a group, they contributed 0.13 to the index in December, compared with 0.25 in November. Manufacturing industrial production was unchanged in December after increasing 0.9 percent in November; but total industrial production increased 0.6 percent for the second consecutive month.

The sales, orders, and inventories category also made a positive contribution, for the fourth time in the past six months. This category contributed -0.03 in December, up from -0.07 in November. The Institute for Supply Management's Manufacturing Purchasing Managers' New Orders Index increased to 65.5 in December from 60.3 in November, reaching its highest level in five years.

Thirty-six of the 85 individual indicators made positive contributions to the index in December, while 48 made negative contributions. Forty-four indicators improved from November to December, while 41 indicators deteriorated. Of the indicators that improved, 16 made negative contributions. The index was constructed using data available as of January 21, 2010. At that time, December data for 52 of the 85 indicators had been published. For all missing data, estimates were used in constructing the index.

The November monthly index was revised to -0.39 from an initial estimate of -0.32. Revisions to the monthly index can be attributed to two main factors: revisions in previously published data and differences between the estimates of previously unavailable data and subsequently published data. The slight downward revision to the November monthly index was due primarily to revisions in previously published data.