What is this Chicago Fed National Activity Index(CFNAI) and what does it tell about the economy? This index reflects the performance of 85 monthly national indicators drawn from four categories:
1) production and income
2) the job market and hours worked
3) personal consumption and housing
4) sales, inventories and orders
How does one go about interpreting the index?
A value of 0 means that the economy is growing at potential and inflation pressures are steady. Greater than > 0 and demand outstrips supply and we see inflation pressures flare up. Less than < 0 and the economy is growing below potential which can lead to rising unemployment.
The Chicago Fed National Activity Index was released today with the 3-month moving average reading 0.28. What does that mean exactly?
First of all we like to look at the CFNAI-MA3 (3-month moving average CFNAI) because it is less volatile than the month-to-month value and revisions in the data have already been incorporated. The following have been observed:
< -.7 = chance of recession has risen substantially
< -1.5 = in a recession
> 0.2 = recession likely over
> 0.7 = inflation is in danger of accelerating
A reading of 0.28 therefore implies:
0.2 < 0.28 < 0.7
Which in words means that the recession is likely over and the economy is in no danger of inflation.