The National Activity Index from the Chicago Federal Reserve Bank dropped from +0.07 in February to -0.29 in March. Positive numbers suggest that the U.S. economy is growing above its historical trend, with negative values implying the opposite. The fact that this indicator has turned negative after three consecutive months of above-trend growth is a sign that U.S. growth has become sluggish.
The three-month moving average still remains positive at +0.05. Values under -0.70 suggest that the economy might be in a recession, signifying that recessionary risks still remain low.
Manufacturing production and capacity utilization both fell slightly in March, and as such, they were one of the main contributors to the index’s decline. Other factors included a weaker contribution from the job market and continued drags from housing.
Stepping back a second, it is important to note that many of the indicators used in this index have shown considerable improvement since last year, with a longer-term trend positive. The outlook for 2012 calls for modest economic growth, for instance, and most manufacturers continue to have a cautiously optimistic outlook. Still, the National Activity Index reflects what other data have shown of late; economic growth is tenuous with a number of persistent headwinds continuing to cause anxieties.
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