Chicago Fed: Improvements in Production, Larger Economic Environment Remains Weak

By August 20, 2012Economy

The National Activity Index from the Chicago Federal Reserve Bank improved from -0.34 in June to -0.13 in July. While the composite figure was higher, it has also been negative for five consecutive months. This was also true for the three-month moving average, which was -0.21 in July. This suggests that the U.S. economy remains below its historical trend, with sluggish growth and uncertainty weighing heavily on the market. While there were increases in some categories – such as consumer spending and housing – they continue to be a drag on the overall index.

Manufacturing, on the other hand, was one of the areas where the improvement in production led to a positive contribution to the index. The 0.6 percent increase in industrial production, which was announced last week, helped to add 0.12 percentage points to the index in July, up from +0.01 in June. We saw a similar conclusion with the Conference Board’s Coincident Economic Index, which measures current activity. (Falling new orders helped to dampen growth in its Leading Economic Index, which is more widely-cited.)

Overall, this data suggests that the national economy remains weak, even with some modest improvements in some sectors. Manufacturers continue to expand, but there is also a level of uncertainty there regarding the future direction of the economy. The National Activity Index does not suggest that a recession is possible (yet), as the three-month moving average is still above the -0.70 threshold. However, it does indicate that there remain some significant headwinds that are dampening overall growth.

Chad Moutray is chief economist, National Association of Manufacturers.

Chad Moutray

Chad Moutray

Chad Moutray is chief economist for the National Association of Manufacturers (NAM) and the Director of the Center for Manufacturing Research for The Manufacturing Institute, where he serves as the NAM’s economic forecaster and spokesperson on economic issues. He frequently comments on current economic conditions for manufacturers through professional presentations and media interviews. He has appeared on Bloomberg, CNBC, C-SPAN, Fox Business and Fox News, among other news outlets.
Chad Moutray

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