The CFNAI’s headline index surged to its highest level since November 2014. A 0.46 gain from production associated indicators was principal driver. The strong rise boosted the 3 month moving average (3MMA), its best showing since December 2014.
The Chicago Fed National Activity Index is a coincident indicator of broad economic activity. It is released monthly by the Chicago Reserve Board. The index value is set such that a value of 0 indicates that the economy is growing at its long-run potential. A value above 0 indicates that the economy is growing above potential, while a negative value indicates that the economy is growing below its potential. The index is a weighted average of 85 indicators of national economic activity.
Figure 1 shows the headline CFNAI from 2006 to present. The CFNAI has now been in positive territory for five consecutive months, its best performance since early 2015.
There are four sub-indexes in the overall CFNAI, including: Production and Income, Employment, Unemployment and Hours, Sales Order and Inventory and Personal Consumption and Housing, (Figure 2). Solid employment gains contributed 0.10 points to the index as nonfarm payrolls rose by 211,000 dropping the unemployment (U3), rate 0.3 points month on month to 4.4%. The sales, orders and inventories category had a neutral reading in April, down from its contribution of 0.07 in March. The personal housing and consumption category was the only sub-set to post a negative value of -0.08. It has now been in negative territory for 124 straight months. Housing starts fell to 1.17 million annualized units from 1.20M in March, as permits also fell 0.03M to1.23M. The good news is that the dotted-line superimposed onto personal consumption and housing indicates that should the rate of gains continue on the current trajectory, this sub-category will turn positive by the end of the year.
Stronger business and consumer confidence, rising stock portfolios, increasing wage pressure, strong household balance sheets, and improving conditions for energy producers and manufacturers all contributed to the CFNAI’s advance in April.
At Gerdau we follow the CFNAI on a monthly basis since it is one of the broadest measures of the health of the US economy. A healthy and expanding US general economy correlates well to stronger steel consumption.