What is the Chicago Fed National Activity Index (or CFNAI)?
The Chicago Fed National Activity Index (or CFNAI) is a national monthly index that estimates overall economic activity and related inflation. It’s constructed to have an average value of zero and a standard deviation of one. Since economic activity tends toward trend growth rate over time, a positive index reading implies the economy is growing above the historical trend rate of growth while a negative index reading corresponds to below-average rate of growth. A reading of zero indicates the economy is growing at historical trend rate of growth.
The CFNAI is a weighted average of 85 existing monthly indicators of national economic activity. The 85 economic indicators that are included in the CFNAI are drawn from four broad categories of data: production and income; employment, unemployment, and hours; personal consumption and housing; and sales, orders, and inventories. Each of these data series measures some aspect of overall macroeconomic activity. The derived index provides a single summary measure of a factor common to these national economic data.
What did January’s reading indicate?
The CFNAI was released on Monday, February 24. The CFNAI reading for January came in at -0.39, lower than December’s reading of -0.03. Forty-one indicators improved from December to January (ten made negative contributions), while 44 indicators deteriorated.
Manufacturing and inflation trend downwards
The index’s three-month moving average, CFNAI-MA3, decreased to +0.10 in January from +0.26 in December—its fifth straight monthly reading above zero. This implies that national economic activity grew above its historical trend. This also suggests limited inflationary pressure from economic activity over the coming year. Production-related indicators contributed –0.36 to the CFNAI in January, down from +0.06 in December. Manufacturing output declined 0.8% in January after increasing 0.3% in December, and manufacturing capacity utilization decreased slightly to 76.0% in January from 76.7% in December.
Employment indicators improve marginally
Employment-related indicators contributed +0.13 to the CFNAI in January, up from +0.06 in December. The unemployment rate fell slightly to 6.6% in January from 6.7% in December, while non-farm payrolls increased by 113,000 in January after rising by 75,000 in the previous month.
Consumption indicators prove a mixed bag
The sales, orders, and inventories category contribution to the CFNAI increased to +0.02 in January from –0.01 in December. The contribution from the consumption and housing category to the CFNAI declined to –0.18 in January from –0.14 in December.
To find out whether the CFNAI’s results were similar to another important survey released the same day, move on to Part 4 of this series.