The National Activity Index from the Chicago Federal Reserve Bank dropped from 0.54 in December to 0.22 in January. Positive numbers suggest that the U.S. economy is growing above its historical trend. Therefore, despite the decline, the real story is the fact that the index has shown above trend growth for two consecutive months. It was positive only three months (January, July and December) in 2011.
Industrial production was one reason that the index dropped, as it was unchanged in January. Of course, as was noted last week, manufacturing production was the exception, with a strong 0.7 percent gain for the month. Positive forces in the economy include employment, sales, orders and inventories. Housing and consumption remain drags on economic growth.
The three-month moving average for the index is 0.14, up from 0.06 last month. Values under -0.70 suggest that the economy might be in a recession. The fact that this measure continues to move away from the recession threshold is obviously a good sign, mirroring other indicators which show recent rebounds in economic activity. While risks still exist, they have lessened significantly over the past few months.
Chad Moutray is chief economist, National Association of Manufacturers.