What a difference a month makes. The Chicago Federal Reserve Bank said that it’s National Activity Index (NAI) shifted from -0.49 in January to +0.44 in February. January’s data reflected a drop in industrial production and reduced housing starts, among other challenges. More importantly, negative numbers indicate that the U.S. economy was growing below its historical trend, and when the 3-month moving average falls below -0.70, the risk of recession is increased. As such, the January NAI suggested that the macroeconomy was headed in the wrong direction.
The latest data, though, suggest that there was definite improvement in February, with manufacturing playing a key role. Industrial production rebounded in February, increasing 0.8 percent. That helped boost the manufacturing contribution to the NAI by 0.34 points, a significant swing from the 0.30 drag on the index the month before. Higher nonfarm payrolls, sales, and housing permits were also positive factors. With that said, because housing data remains well below where it was a few years ago, the sector continues to have a negative contribution overall.
Despite the higher monthly NAI, the three-month moving average edged lower, from +0.28 in January to +0.09. Nonetheless, this value still indicates an economy that is growing above its historical average, even if it is not growing strongly.
This data is consistent with the Leading Economic Index report issued last week from the Conference Board. Overall, the U.S. economy is experiencing moderate growth, with manufacturers cautiously optimistic about increased activity moving forward. Still, there continue to be headwinds, and it will be interesting to see how the across-the-board federal spending cuts impact growth moving forward, particularly as we move into the second quarter of 2013.
Chad Moutray is chief economist, National Association of Manufacturers.
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