Green Light, Red Light

Go!  Accelerating economic activity pushed the Chicago branch of the Federal Reserve System’s National Activity Index (CFNAI) higher in November.  The monthly tally was strong, moving to +0.73 from an upwardly revised count of 0.31 (originally 0.14) in October.  However, green lights were not the only signal in the report.  While production led the indicator higher, the other three major categories within this report remained negative or deteriorated in the period.

Manufacturing and industrial production chirped the tires with increases of 1.1 percent and 1.3 percent respectively.  On the other hand, employment approached a yellow light, but instead of speeding up like most American drivers, it decelerated from +0.22 in October to +0.17 in November.  Sales reacted similarly, slowing to +0.02 from +0.11 in the prior period.   Consumption indicators remained in reverse although they are now heading in the wrong direction at a slower pace, increasing to -0.10 from -.11 a month earlier.

Atlas watches the three-month moving average for the CFNAI because the monthly totals often start and stop like a new driver learning to use a manual transmission.  This average shifted gears higher, accelerating to +0.48 from an upwardly revised +0.09, (originally -0.01).  Our economy nears its redline when this average reaches +0.7; like the temperature of an engine running at too many RPMs, inflation heats up at this critical level.  The current reading on the dashboard indicates the motor is operating efficiently, the temperature is acceptable, RPMs are accelerating a bit, and our economy is moving smoothly up hill.    (by C. Cox)