The pace of U.S. economic growth slowed in August as evidenced by the declining score of the CFNAI. The CFNAI fell -0.31 in August after ticking up a revised 0.03 in June. On a three month moving average, (3MMA) basis the CFNAI dipped into negative territory for the first time in five months, with a posting of -0.04.
The Chicago Fed National Activity Index is a coincident indicator of broad economic activity. The index is a weighted average of 85 indicators of national economic activity. A zero value for the CFNAI has been associated with the national economy expanding at its historical trend (average) rate of growth; negative values with below-average growth (in standard deviation units); and positive values with above-average growth.
Figure 1 shows the 3MMA of the CFNAI from 2010 to present. The CFNAI has been in positive territory for six of the eight months but has struggled with the persistent drag from the Personal Consumption and Housing sub-index.
Figure 2 shows the four sub-indexes of the overall CFNAI. Two of the four sub-categories that make up the index declined from the prior month resulting in an overall negative index score. The Production and Income sub-index fell 0.36 and the Personal Consumption and Housing sub-index was off 0.06. Employment, unemployment and Hours and Sales, Orders and Inventory moved higher by 0.05 and 0.06 respectfully. The Production and Income sub-index often has wild swings from month to month. Over the last six months, the scores were: -0.11, +0.55, -0.13, -0.01. +0.03 and -0.36. One standard deviation over the past two years = 0.22. So it is important to look at three, (or higher) month moving averages to get a better sense of U.S. economic activity.
The personal housing and consumption category continued its streak (128 months), of negative contributions to the CFNAI. Retail sales disappointed, negatively influenced by hurricane Harvey. This situation will shortly reverse itself as people impacted by the storm replace items that were damaged or destroyed. The housing market declined from the previous month. The construction labor market is very constrained with the unemployment rate in this sector at a cyclical low. This labor shortage is causing a considerable constraint on the build rate of new residential structures.
Employment indicators continued to post strong numbers as the economy continues to generate jobs. August non-farm payrolls rose 156,000 falling below the 200,000 trend-line. Employment trends have improved in goods-producing industries. Manufacturers added 36,000 jobs during the month with strong gains in the durable goods sector. Analysts expect the labor market’s strong performance to continue well into the next year with the flooding in Texas and Louisiana causing only a temporary weakness.
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.