Why Chicago Fed’s National Activity Index shows slowing growth in April
Chicago Fed’s National Activity Index (or CFNAI) down in April—implies moderating growth
The Chicago Fed’s National Activity Index (or CFNAI) for April 2014 was released on Thursday, May 22, 2014. The CFNAI is a nationwide measure of economic activity. The headline index reading declined to -0.32 in April from 0.34 in March. This implied that the rate of economic growth was moderating in April. A fall in production was a major cause of the decline in the CFNAI.
Interested in HYG? Don't miss the next report.
Receive e-mail alerts for new research on HYG
What is 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. Since economic activity tends toward a long-term average 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 a 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.
Highlights of May’s release
Two out of the four categories of indicators making up the CFNAI increased.
The CFNAI Diffusion Index increased to 0.18 in April—up from 0.08 in March. Out of the 85 indicators that the CFNAI readings are based on, 37 recorded month-on-month improvements in April, while 47 indicators declined. Of the indicators showing improvement, the contribution from 15 was negative.
The CFNAI-MA3 (the 3-month Moving Average) rose to 0.19 in April, its highest level since November, 2013, which implies growth was above-trend, based on the moving average.
Production related indicators fell sharply to -0.37 in April from 0.27 in March. Consumption related indicators declined, dragging down the CFNAI, while an increase in housing starts and permits pushed the index upwards.
Employment indicators increased slightly to 0.17 in April from 0.15 in March. Non-farm payrolls had increased by a higher-than-expected 288,000 in April and the unemployment rate had also fallen to 6.3% from 6.7%. To read about April’s better than expected rebound in the labor market, please read the Market Realist series, Why April 2014 saw the best payroll numbers since January 2012.
In the next section, we’ll discuss the Kansas City Fed’s Manufacturing Activity Index, which was also released last Thursday. Unlike the CFNAI, this is a regional index and includes economic activity only in the Tenth District. We’ll also look at the impact of manufacturing survey releases like the CFNAI and the Tenth District Manufacturing Survey on companies included in the iShares U.S. Industrials ETF (IYJ) like General Electric (GE) and United Technologies (UTX). We’ll also discuss their impact on fixed income ETFs like the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) and the SPDR Barclays Capital High Yield Bond ETF (JNK). Please read on.