Chicago Fed Nat’l Activity Index: Slower Slow Growth In January

The Chicago Fed National Activity Index (CFNAI) dropped in January to -0.32 from +0.25 in December, the Chicago Fed reports, although the three-month average (CFNAI-3MO) reading rose to +0.30 from an upwardly revised +0.23 in December. Recession risk, in other words, was minimal last month. Although economic growth slowed in the start of the year, the three-month average of this index in January was well above the -0.70 level. That’s considered to be the tipping point for the onset of recessions. (CFNAI, a weighted average of 85 indicators, is designed as a benchmark of US economic activity broadly defined.)


It’s notable that December’s three-month average was revised higher by a substantial amount: +0.23 vs. the initial estimate of -0.11. The revised figure is based on additional data that’s been published in recent weeks. The December revision suggests that the disappointing initial estimate of fourth-quarter GDP will also be revised to a higher level in this Thursday’s release of the second update of national economic activity. In fact, the consensus forecast currently sees a 0.5% growth rate for GDP in last year’s fourth quarter, up from the initial estimate of -0.1%, according to Briefing.com.

The relatively upbeat report for CFNAI-3MO was hardly a surprise. As I discussed last week, the available data for January looked encouraging in the February 18 update of The Capital Spectator Economic Trend & Momentum indices. A few days later, I noted that three additional releases for the January profile were clearly biased toward growth too. No wonder that Friday’s preview of CFNAI-3MO looked encouraging.
The outlook for February and beyond, however, looks a bit more shaky. That’s only a hunch, of course, in part because of worries over the uncertainty via the automatic budget cuts that are set to begin in March. Some analysts warn that the economy could be thrown into a recession if Congress doesn’t intervene to soften the blow. But no one’s really sure how the cuts will impact the business cycle until we see the numbers.
Meantime, the first clue of what to expect for the still-mysterious February economic profile will hit the streets on Friday, March 1, with the release of the ISM Manufacturing Index. The consensus forecast sees a slight downward moderation in growth, according to Econoday.com. Actually, a competing index from Markit Economics already told us as much last week, with the initial estimate of this month’s PMI manufacturing index slipping a bit to 55.2 from 56.1 in January. Nonetheless, Markit’s first look at February manufacturing data “signalled further expansion,” according to the press release (pdf).
Bottom line: a broad set of January data tells us that this year arrived in a recession-free state. Deciding what comes next, of course, is a work in progress.

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