The National Activity Index fell in March despite positive averages

Market Realist

Mid-week indicator review: The US economy after the winter freeze (Part 2 of 5)

(Continued from Part 1)

The Chicago Fed National Activity Index

The Chicago Fed National Activity Index (or CFNAI) released monthly by the Federal Reserve Bank of Chicago, is designed to better gauge the overall economic activity and inflationary pressure.

The index combines 85 diverse and already released indicators from four broad categories into an overall index to measure economic performance. The categories are:

  • production and income;
  • employment, unemployment, and hours;
  • personal consumption and housing; and
  • sales, orders, and inventories.

The National Activity Index stood at a 0.20 for the month of March. Although this figure stands low to the 0.53 figure released for February, the three-month average rose to zero from February’s revised -0.14. A zero reading indicates that economic growth in the month was at historical trend.

The drop in the index level can be primarily attributed to the production component. A very positive acceleration in the employment component helped offset the weakness in the production component. The personal consumption and housing components, being the weakest components, showed signs of improvement, while sales, orders, and inventories declined vis-à-vis figures reported in February.

Investors’ takeaway

The index provides another measure with which investors can measure overall growth. A positive index reading corresponds to an above-average economic growth, and a negative index reading corresponds to a below-average economic growth.

For ETF investors, the performances of popular exchange-traded funds (or ETFs) like the SPDR S&P 500 ETF (SPY), the iShares Core S&P 500 ETF (IVV), and the iShares S&P 100 ETF (OEF), which track large-cap equities of companies like Apple Inc. (AAPL) and Exxon Mobil (XOM), also serves as good indicators of the course that the U.S. economy is taking.

While the CFNAI indicated a positive trend based on averages, the Leading Economic Index warmed up to welcome the warm spring season, which is discussed in the next part of this series.

Continue to Part 3

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