>NATIONAL ACTIVITY INDEX

What is the National Activity Index?
The index is a weighted average of 85 indicators of national economic activity. The indicators are drawn from four broad categories of data: 1) production and income; 2) employment, unemployment, and hours; 3) personal consumption and housing; and 4) sales, orders, and inventories.

A zero value for the index indicates that the national economy is expanding at its historical trend rate of growth; negative values indicate below-average growth; and positive values indicate above-average growth.

Why are there two index values?
Each month, we provide a monthly index number, which reflects economic activity in the latest month for which we have data, and a three-month moving average. Month-to-month movements can be volatile, so the index’s three-month moving average, the CFNAI-MA3, provides a more consistent picture of national economic growth.

What do the numbers mean?
When the CFNAI-MA3 value moves below –0.70 following a period of economic expansion, there is an increasing likelihood that a recession has begun. When the CFNAI-MA3 value moves above +0.70 more than two years into an economic expansion, there is an increasing likelihood that a period of sustained increasing inflation has begun.

Led by improvements in production-related and employment-related indicators, the Chicago Fed National Activity Index increased to –0.32 in November, up sharply from –1.02 in October. Two of the four broad categories of indicators that make up the index improved, although only the production and income category made a positive contribution.

The index’s three-month moving average, CFNAI-MA3, increased to –0.77 in November from –0.87 in October. November’s CFNAI-MA3 suggests that growth in national economic activity was below its historical trend. The level of activity, however, remained in a range that has historically been consistent with the early stages of a recovery following a recession. With regard to inflation, the amount of economic slack reflected in the CFNAI-MA3 indicates low inflationary pressure from economic activity over the coming year.

Production-related indicators made a contribution of +0.35 to the index in November, compared with –0.09 in October. This contribution accounted for much of the improvement in the index
in November. Industrial production rose 0.8 percent in November after being unchanged in October; and manufacturing production increased 1.1 percent in November after decreasing 0.2 percent in the previous month. Furthermore, manufacturing capacity utilization increased to 68.4 percent in November from 67.6 percent in October.

Employment-related indicators made a contribution of –0.12 to the index in November, up from –0.42 in October. Initial unemployment insurance claims in November declined to their lowest level during the past year; and the unemployment rate edged down to 10.0 percent in November from 10.2 percent in the previous month. In addition, payroll employment decreased by 11,000 in November after declining by 111,000 in October; and average weekly hours worked in manufacturing increased to 40.4 in November from 40.1 in the previous month.

The consumption and housing category’s contribution to the index was –0.48 in November, roughly unchanged from its value in October. The sales, orders, and inventories category made a contribution of –0.07 in November, down slightly from –0.02 in October.

To read the full report: NATIONAL ACTIVITY INDEX