The Chicago Fed National Activity Index edged lower to +0.21 in May from +0.25 in April. Production indicators continued to make strong contributions to the index in May, while weaker contributions from employment- and housing-related indicators accounted for the slight decrease in the index from April.

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The index’s three-month moving average, CFNAI-MA3, rose to its highest level since March 2006, increasing to +0.28 in May from +0.05 in April. May’s CFNAI-MA3 suggests that growth in national economic activity was above its historical trend. Moving above +0.20, the index’s three-month moving average in May also reached a level historically associated with a mature economic recovery following a recession. With regard to inflation, the CFNAI-MA3 in May indicates limited inflationary pressure from economic activity over the coming year.

Production-related indicators made a contribution of +0.51 to the index in May, compared with +0.39 in April. Industrial production rose 1.2 percent in May after increasing 0.7 percent in April, and manufacturing production increased 0.9 percent for the second straight month.

In addition, manufacturing capacity utilization rose to 71.5 percent in May from 70.8 percent in the previous month, reaching its highest level since October 2008.

Employment-related indicators contributed +0.06 to the index in May, down from +0.21 in April. Total nonfarm payroll employment rose by 431,000 in May after increasing by 290,000 in April. However, private payroll employment in May increased by only 41,000 after rising by 218,000 in April. The sales, orders, and inventories category also contributed +0.06 to the index in May, up slightly from +0.04 in April.

In contrast, the consumption and housing category’s contribution to the index remained negative. This category contributed -0.42 in May, down slightly from -0.40 in April. Housing starts declined to 593,000 annualized units in May from 659,000 in April, and building permits declined to 574,000 annualized units in May from 610,000 in the previous month.

Forty-four of the 85 individual indicators made positive contributions to the index in May, while 41 made negative contributions. Forty-four indicators improved from April to May, while 38 indicators deteriorated and three were unchanged. Of the indicators that improved, 12 made negative contributions. The index was constructed using data available as of June 17, 2010. At that time, May data for 52 of the 85 indicators had been published. For all missing data, estimates were used in constructing the index.

The April monthly index was revised to +0.25 from an initial estimate of +0.29. 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 downward revision to the April monthly index was due primarily to revisions in previously published data.