Economy Watch: Chicago Fed Reports Economic Activity Increased in January

The increase was led by improvements in the production sector of the economy.

Contrary to some recent economic metrics, which point to a sluggish economy, the Chicago Fed National Activity Index (CFNAI) rose to +0.28 in January, a considerable upward swing from –0.34 in December, the bank reported on Monday. The increase was led by improvements in the production sector of the economy, with two of the four broad categories of indicators that make up the index increasing from December, and two of the four categories made positive contributions to the index in January.

The National Activity Index is a weighted average of 85 indicators of national economic activity drawn from four broad categories of data: 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 U.S. economy is expanding at its historical trend rate of growth, while negative values indicate below-average growth and positive values indicate above-average growth.

The index’s three-month moving average, the ponderously named CFNAI-MA3, increased to –0.15 in January from –0.30 in December. January’s CFNAI-MA3 suggests that growth in national economic activity was somewhat below its historical trend, but still an improvement from December. The economic growth reflected in this level of the CFNAI-MA3 also points to continued low inflationary pressure from economic activity over the coming year, according to the Chicago Fed.

The CFNAI-MA3, which is less volatile than the one-month index, has in recent years been within its typical range (at least typical since about 1990), which is between +1.0 and –1.0. Recessions tend to drop the metric quite quickly, but even so recovery is quick as well. Even the recession that hit in 2008, which took the CFNAI-MA3 below –4.0 for a short time, had recovered to above zero by 2010.