The Chicago Fed’s National Activity Index pulled back in February, coming in at −0.29, down from −0.25 in January. The index is a composite of 85 economic data series. It is constructed so zero represents trend growth in the economy, with readings above zero suggesting above-trend growth and readings below zero indicating below-trend growth.
The index posted its third monthly negative result in a row and the fourth in the last five months. The three-month average, which helps reduce month-to-month volatility in the index, came in at −0.18 versus a neutral reading in January.
The overall index comprises four component indexes: production and income; employment, unemployment, and hours; personal consumption and housing; and sales, orders, and inventories. For February, three of the four component groups posted negative contributions as production and income made a −0.16 contribution compared to a −0.29 contribution in January, employment-related indicators made a −0.10 contribution in the latest month, down from a +0.07 result last month, and personal consumption and housing made a −0.06 contribution versus a −0.03 contribution in January. Partially offsetting the negative contributions was a +0.03 contribution from the sales, orders, and inventories segment, up from a +0.01 contribution in January.
For the February estimate, 45 of the 85 indicators were available. Estimates were used for the unavailable data. The diffusion index for February was −0.05 versus +0.12 in January. The CFNAI Diffusion Index represents the three-month moving average of the sum of the absolute values of the weights for the underlying indicators whose contribution to the CFNAI is positive in a given month less the sum of the absolute values of the weights for those indicators whose contribution is negative or neutral in a given month.
Despite the weaker performance in February, the index remains above levels historically associated with either recession or significant price increases. Readings below −0.70 for the three-month moving average of the national activity index have been associated with recessions while readings above +0.70 have been associated with an increasing likelihood of persistent price increases. Similarly, readings below −0.35 for the diffusion index have been associated with recessions.
The data support a cautiously positive outlook with results suggesting weak growth but not recession, and little risk of significant price increases.