February 2015 Chicago Fed National Activity Index

Additional evidence of economic deceleration was found in the February iteration of the Chicago National Activity Index (CFNAI).  Not only was the most recent tally negative (-0.11), January’s count was revised from +0.13 to -0.10, and the 3-month moving average fell below zero (-0.08) as well.  This comprehensive indicator does not bode well for first quarter gross domestic product (GDP), due out at the end of April.

Contributions to the indicator were mixed.  Forty-eight of the 85 components made positive offerings in the period; the other 37 negatively influenced the total.  A silver lining emerged as a greater number of the constituents improved (46) than deteriorated (39).  Of the indicators that improved, ten still made a negative contribution to the total.  Production-related indicators contributed -0.07 in February, up from -0.20 a month earlier.  Employment components added 0.11 to the CFNAI, falling from 0.16 in January.  The personal consumption and housing category made the biggest negative impact to the total with a reading of -0.17, down from -0.07 in the prior period.

Monthly CFNAI figures are relatively erratic, so Atlas pays more attention the 3-month moving average.  February is the first time this average has dipped below zero since the same month last year.  A mild descent into negative territory does not mean anything other than the economy is now growing at a pace slightly slower than its recent trend.  In order for something more meaningful to come from this moving average, the reading will need to fall below -0.70 (signaling a recession is nearing) or rise above +0.70 (a red flag for inflation).  At this stage, the indicator is not near these thresholds, so the real takeaway this month is that the economy is neither too hot nor too cold, but describing it as just right does not seem appropriate either.  (by C. Cox)