Chicago Fed National Activity Index Declines in June

Led by deterioration in production- and employment-related indicators, the Chicago Fed National Activity Index declined to -0.63 in June, down from +0.31 in May. Three of the four broad categories of indicators that make up the index made negative contributions in June, while the sales, orders, and inventories category made the lone positive contribution.

The index's three-month moving average, CFNAI-MA3, decreased to -0.05 in June from +0.31 in May. The CFNAI-MA3 suggests that growth in national economic activity returned very close to its historical trend in June after reaching its highest level since March 2006 in May. With regard to inflation, it indicates subdued inflationary pressure from economic activity over the coming year.

Production-related indicators made a contribution of -0.11 to the index in June, down from +0.61 in May. Industrial production edged up 0.1 percent in June after increasing 1.3 percent in May; manufacturing production declined 0.4 percent in June after increasing 1.0 percent in the previous month.

Employment-related indicators contributed -0.13 to the index in June, down from +0.08 in May. Total nonfarm payroll employment declined by 125,000 in June after increasing by 433,000 in May. In addition, average weekly hours worked in manufacturing decreased to 41.0 in June from 41.5 in the previous month. The consumption and housing category's contribution to the index remained negative but improved slightly to -0.43 in June from -0.45 in May. Housing starts declined to 549,000 annualized units in June from 578,000 in May, while building permits increased to 586,000 annualized units in June from 574,000 in the previous month.

The sales, orders, and inventories category made a contribution of +0.05 to the index in June, compared with +0.06 in May. The Institute for Supply Management's Manufacturing New Orders Index decreased to 58.5 in June from 65.7 in May, and the Manufacturing Inventories Index edged up to 45.8 in June from 45.6 in the previous month.

Thirty-six of the 85 individual indicators made positive contributions to the index in June, while 49 made negative contributions. Twenty-nine indicators improved from May to June, while 56 indicators deteriorated. Of the indicators that improved, thirteen made negative contributions. The index was constructed using data available as of July 22, 2010. At that time, June data for 52 of the 85 indicators had been published. For all missing data, estimates were used in constructing the index.

The May monthly index was revised to +0.31 from an initial estimate of +0.21. 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 upward revision to the May monthly index was due primarily to revisions in previously published data.