Chicago Fed National Activity Index Down Slightly In September

The super coincident indicator – the Chicago Fed National Activity Index (CFNAI) – was down slightly in September 2010.   The headlines:

The index’s three-month moving average, CFNAI-MA3, ticked down to –0.33 in September from –0.32 in August. September’s CFNAI-MA3 suggests that growth in national economic activity was below its historical trend. With regard to inflation, the amount of economic slack
reflected in the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year.  The consumption and housing category contributed –0.39 to the index in September, up  slightly from –0.40 in the previous month. Housing starts edged up to 610,000 annualized units  in September from 608,000 in August, while building permits decreased to 539,000 annualized units in September from 571,000 in the previous month.

 The CFNAI  is a weighted average of 85 indicators drawn from four broad categories of data: 1) production and income; 2) employment, unemployment,  and hours; 3) personal consumption and housing; and 4) sales, orders, and inventories.  Econintersect uses the three month moving average for its analysis as the index is quite noisy – and the three month moving average smooths out the data so trends are obvious.

The CFNAI’s methodology is so sound that by using its trends, you have some short term view of the future.  It is the best overall summary of the economic coincident picture for September 2010 – and that picture is a rather flat languishing economy running well below its potential but not recessionary.

If the CFNAI-MA3 (the three month moving average) falls belows -0.7, it is likely the economy is in a recession.  And as the index is currently -0.53, the economy remains in a very slugglish place.  But the real story is always the backward revisions.  This September 2010 release had a backward revision through almost the entire year.  The table below tells the story on the backward revisions:

In a sense, the CFNAI is in the same place in September as it was in August because of the backward revisions (which improved the indexes values for most of this year).  Overall, there is no feel in the index that the economy is falling off of a cliff as the index has been flat for two months now.  Over the last year, monthly fluctuations have been in the 0.10 to 0.20 range indicating economic activity is relatively stable.

Econintersect remains on a recession watch as the economy is showing little strength, and has the potential to soften if a major negative economic event occurs.  A revised economic outlook is planned to be released this week.