The National Activity Index from the Chicago Federal Reserve Bank has been in negative territory for three of the past four months. This is true despite a slight uptick in June, with the index rising from -0.48 in May to -0.15 in June. The improvement was led by increased industrial production and capacity utilization. Manufacturing production rose 0.7 percent for the month, bouncing back from May’s decline. Other positive influences were observed in consumer spending and housing data.
Meanwhile, inventories, sales and new orders pulled the index lower. We saw similar readings with last week’s Leading Economic Indicators report. Lackluster employment data yielded no contribution.
The three-month moving average was -0.20 in June, its fourth consecutive monthly reading. This suggests that the national economy remains below its historical trend, with sluggish growth and uncertainty weighing heavily on the market. At the same time, the three-month average was higher than the -0.38 figure observed in May. Values less than -0.70 indicate an increased risk of recession, indicating that the risk of recession was reduced.
With that said, uncertainties regarding the fiscal cliff and slowing global growth are clearly having an effect, and the ability of the economy to avoid a recession going into 2013 will hinge on a number of factors between now and then.
Chad Moutray is chief economist, National Association of Manufacturers.