February Chicago Fed’s National Activity Index

The Chicago branch of our Federal Reserve reported that their National Activity Index (CFNAI) swung back into positive territory in February, registering a 0.14 post versus the -0.45 January reading (originally reported to be -0.39). While this positive total is welcome news, it could not compensate for the recent negative numbers which have moved the three-month average down to -0.18 and back into negative territory for the first time in six months; it sat at 0.02 (also revised from 0.10 in the original report) in January.

Here at Atlas we like this indicator because it combines 85 separate data points into a single reading. Obviously this makes it much more comprehensive than any other single marker we follow. As has been the case for the past few months, this bounce is getting some attribution from the weather, especially as it negatively impacted manufacturing in prior months. Specifically we see the production component moving up strongly from -0.38 in January to a positive 0.26 for February. Sales/orders/inventories gained a bit to 0.06 while consumption and housing was slightly less negative at -0.16; employment fell into the minus column to -0.02 from 0.11 in January.

Seeing either the monthly reading or the three-month moving average fall into negative territory is neither unusual nor alarming. What we do not want to see is the latter move below -0.7 since this is felt to suggest the likelihood that a recession has begun according to contemporary thought. We will need to see several future reports before being able to clearly separate weather-induced static from any underlying trend which might point to a slowdown in the economy which we suggested was a growing possibility in our prior CFNAI report. (by J R)