Fed Banks Cautious on the Economy, With a Dash of Hope

Our economic model’s cautious warning, which we published earlier this week, appears to be in line with two reports released today by Federal Reserve banks.

This morning, the Chicago Fed released its March National Activity Index, which fell to -0.44 in March, down from -0.38 in February. With 0 as the trend of economic growth, that means the Chicago Fed sees that there was a weaker growth rate for the economy in March.

“Growth has been below trend for most of the past year according to this gauge, though like our Leaders Index, it’s not signaling a recession yet,” said Bob Hughes, our senior research fellow here at the American Institute for Economic Research.

The index is made up of four broad categories, and three of them – production, employment, and personal consumption and housing – fell during the month.

The exception was sales, orders and inventories, which was neutral.

The Philadelphia Fed also saw a slightly negative reading for its April Manufacturing Business Outlook Survey, which was released this morning. The index fell from 12.4 in March to -1.6 this month. The percentage of firms reporting an increase in new orders, and those reporting a decrease in new orders, was the same, leaving the new orders diffusion index at zero. Nearly every other component of the current conditions survey was negative. The one positive from the report was a strong reading from the expectations survey where the overall index rose to 42.2 in April from 28.8 in March (zero is neutral).

“Despite the weak current conditions, manufacturers in the Philly Fed district appear to be getting more optimistic about the outlook,” Hughes said.