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Chicago Fed Measured Poor July National Growth Trends Ahead of FOMC Minutes

Jon C. Ogg

Tuesday's top economic report was the Chicago Fed National Activity Index (CFNAI), which shows that the national economy continued to contract in the month of July. The figure came at -0.15, and 0.0 is the break-even point between expansion and slower growth. We also saw that the CFNAI in June was revised from bad to worse, with the preliminary report of -0.13 being revised to -0.23.

This is one of those reports that may deserve more attention than it gets. Chances are high that some of the observations will mirror the Fed's minutes from the last FOMC meeting, which are due this week.

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Despite a negative reading, there was improvement in July as three of the four major components were up from lower levels in June. The first big gain was in the sales, orders and inventories rising above zero to 0.04 from -0.07 in June. Consumption and housing was up to -0.15 from -0.20 in June, and employment-related indicators also posted a slight improvement.

The CFNAI is a monthly index designed to better gauge overall economic activity and is used to measure inflationary pressures. It is a weighted average of 85 existing monthly indicators used for measuring national economic activity. It is constructed to have an average value of zero and a standard deviation of one: a positive index reading above zero indicates growth above trend, and a negative index reading indicates that growth is below trend.

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The 85 economic indicators that are included in the CFNAI are drawn from four broad categories of data:

  • Production and income
  • Employment, unemployment and hours
  • Personal consumption and housing
  • Sales, orders and inventories

While this report indicates subpar growth, it has little market impact, despite being one of the first national reports for the prior month.


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