Economy Slows in November, But Only a Little

Will the U.S. economy continue to grow?

focus-interest-ratesDid the Fed jump the gun when it comes to interest rates last week? That might be a question for economic historians someday, but for now the proof will be whether the U.S. economy continues to grow at a reasonable rate. That will be determined as the data comes in. The first data set along those lines came in on Monday when the Federal Reserve Bank of Chicago reported that the economy slowed down a bit in November, according to the movement of its Chicago Fed National Activity Index (CFNAI), which is a monthly index designed to gauge overall economic activity and related inflationary pressure.

Led by declines in production-related indicators—manufacturing has suffered from the strong dollar, after all—the CFNAI was down to -0.30 in November, compared with -0.17 in October. The further below zero, the lower economic activity is compared with historical trend. The three-month moving average, CFNAI-MA3, which is less volatile, didn’t move as much, dropping to -0.20 in November compared with -0.18 in October. The index is formulated from 85 different economic indicators in four broad categories.

The contribution of personal consumption and housing to the CFNAI actually grew stronger month-over-month, ending November at -0.06, compared with -0.11 in October. The Fed noted that housing starts, which were up, and housing permits, which were also up, contributed to that increase. Personal consumption and housing have more of an impact on the retail and residential real estate markets than any other category. The sales, orders, and inventory category, which affects office and industrial markets to some degree, were slightly stronger in November, coming in at -0.02, up from -0.03 the month before. That’s nearly as historic norms.

The low CFNAI numbers also suggest that there isn’t going to be much inflation next year, the Chicago Fed also said. That’s probably the case if the energy market remains as glutted as it has been this year. On Monday, oil prices hit 11-year lows, with Brent crude, the international benchmark, trading at $36.50 per barrel. Recently the International Energy Agency said it expected global inventories to keep growing for at least another year, though at a slower pace than this year. “As inventories continue to swell into 2016, there will still be a lot of oil weighing on the market,” the agency said.