Chicago Fed: National Economy Weakened Significantly in August

By September 24, 2012Economy

The Chicago Federal Reserve Bank said that the U.S. economy weakened significantly in August. Its National Activity Index declined from -0.12 in July to -0.87 in August. The three-month moving average fell from -0.27 to -0.47, its lowest level since June 2011. Negative values suggest that the U.S. economy is growing below its historical average, and when the 3-month moving average falls below -0.70, the risk of a recession is increased. Therefore, the lower index values this month suggest an economy that is moving in the wrong direction, but not quite in recession territory yet.

As with the Conference Board’s Leading Economic Index which was released last week, reduced manufacturing activity was a major contributor this month’s decline. Production-related components reduced the measure, with its contribution down from +0.08 to -0.58. The 1.2 percent decline in industrial production, in addition to lower capacity utilization, was an important factor.

Consumption, housing, and employment factors also provided negative contributions to the index. While housing starts were higher, permits were lower. Sales have also been an issue, particularly for manufacturers.

Overall, the Chicago Fed’s National Activity Index is one more measure showing that the manufacturing sector – as well as the U.S. and global economy – continues to experience significant headwinds. It will be important for us to reverse these trends, but with slowing global growth and worries about the fiscal abyss mounting, we are probably not out of the woods yet.

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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