Improved National Activity Index Points to Economy’s Resilience

Two of the four broad categories that make up the Federal Reserve of Chicago's National Activity Index (CFNAI) were up from September, and one of them contributed to the October's improvement.

Another relatively positive metric for the economy in October (and one that policymakers at the Fed probably pay attention to) was the Federal Reserve of Chicago’s National Activity Index (CFNAI), which is a broad composite of other indicators. The Fed released the index for October on Monday, and it came in at -0.04, a considerable improvement compared with September, when the CFNAI was at -0.29. Two of the four broad categories that make up the index were up from September, and one of them contributed to the month’s improvement.

All together, the National Activity Index is a weighted average of 85 indicators of national economic activity drawn from four broad categories: production and income; employment, unemployment, and hours; personal consumption and housing; and sales, orders, and inventories. A zero value for the index means that the national economy is expanding at its historical trend rate of growth, while negative values indicate below-average growth and positive values indicate above-average growth.

Historically, the index has hovered higher than zero most years, never rising over +2, but the shorter troughs below zero tend to be deep, including the Great Recession and the oil-shock recession of the early ’70s, when it plunged to around -4. Roughly speaking, the index returned to its historic pattern by the end of 2010, after a massive two-year trough caused by the most recent recession. From month to month, however, the CFNAI can be volatile.

In October 2015, the most postive of the broad categories that compose the CFNAI were employment-related indicators, coming in at +0.11, compared with -0.06 in September. That mostly reflects the improvements in recent months in hiring by U.S. companies after some sluggishness in the summer. The three other broad categories mostly improved, but are still below historic norms for growth, such as production-related indicators, which came in at -0.05 in October, up from -0.17 in Septemeber. The sales, orders and inventory categories registered -0.01 for October, down slightly from +0.01 in September; and the personal consumption and housing category also ticked down to -0.09 for October, compared with -0.07 in September.