The National Activity Index from the Chicago Federal Reserve is a composite index 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 came in at 0.17 in September, up from −0.37 in August. The 0.17 reading is the best since a similar 0.17 reading in June. The three-month average, which helps reduce month-to-month volatility in the index, came in at −0.16, unchanged from the prior month. September was the third month in a row that the three-month average was below zero. Prior to the latest three months, the three-month average index posted positive readings in six of the seven months from December 2016 through June 2017. Some of the recent weakness is likely due to hurricane-related disruptions to economic activity.
The overall index comprises four component indexes: production and income; employment, unemployment, and hours; personal consumption and housing; and sales, orders, and inventories. For September, three of the four components posted positive readings, with personal consumption and housing being the one negative contributor.
The weak performance of the index over the three months through September suggests real gross-domestic-product growth is likely to be weaker than in the second quarter. Real GDP rose at a 3.1 percent pace in the second quarter, and the current consensus for third-quarter growth is 2.5 percent, according to Thomson Reuters. The weakness is confirmed by regional Fed bank nowcasts of real GDP growth for the third quarter. The Federal Reserve Bank of New York is estimating third-quarter growth of just 1.5 percent. A more optimistic estimate comes from the Federal Reserve Bank of Atlanta, which estimates real GDP growth at 2.7 percent, well above the FRBNY’s estimate and close to the current-consensus poll. All of the estimates are below the 3.1 percent growth of the second quarter.
In sum, while growth may have slowed in the third quarter, some of the slowdown is attributable to natural disasters such as hurricanes and wildfires. The outlook remains reasonably upbeat, with the likelihood of recession over the next several months quite low.