Chicago Fed National Activity Index Edges Downward in August

The Chicago Fed National Activity Index was -0.81 in September, down from -0.65 in August. Three of the four broad categories of indicators made negative contributions to the index in September, but the production and income category made a positive contribution for the third consecutive month.

At -0.63 in September (up from -0.96 in the previous month), the index's three-month moving average, CFNAI-MA3, suggests that growth in national economic activity was below its historical trend. However, the CFNAI-MA3 in September improved to a level greater than -0.7 for the first time since the early months of this recession. For the four previous recessions, the first month when the CFNAI-MA3 was above -0.7 coincided closely with the end of each recession as eventually determined by the National Bureau of Economic Research.

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.

Production-related indicators made a smaller positive contribution of 0.27 to the index in September compared with 0.49 in August. Manufacturing production increased 0.8 percent in September after rising 1.2 percent in August, and manufacturing capacity utilization increased to 67.5 percent in September from 66.8 percent in the previous month.

The consumption and housing category's contribution to the index deteriorated in September to -0.52, following a contribution of -0.38 in August. Housing permits decreased to 573,000 annualized units in September from 580,000 in the previous month. In addition, housing starts in the Northeast, Midwest, and West were also lower in September than in August.

In contrast, employment-related indicators made a contribution of -0.53 to the index in September versus -0.61 in August. The unemployment rate ticked up 0.1 percent in September after increasing 0.3 percent in August, and average weekly initial unemployment insurance claims declined in September from the previous month. The sales, orders, and inventories category also improved in September, contributing -0.03 compared with -0.14 in August.

Thirty-two of the 85 individual indicators made positive contributions to the index in September, while 53 made negative contributions. Thirty-nine indicators improved from August to September, while 46 indicators deteriorated. Of the indicators that improved, 23 made negative contributions. The index was constructed using data available as of October 22, 2009. At that time, September data for 52 of the 85 indicators had been published. For all missing data, estimates were used in constructing the index.

The August monthly index was revised to -0.65 from an initial estimate of -0.90. 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 August monthly index was due primarily to revisions in previously published data.