The pace of U.S. economic growth accelerated in October as evidenced by the strong score of the CFNAI which moved-up 0.65 after a 0.36 rise in September. This was just the second time since late 2014, that the index recorded back-to-back monthly advances. On a three month moving average, (3MMA) basis the CFNAI managed to just move into positive territory, scoring 0.01.
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.
On a monthly basis, three of the four sub-indexes were positive in October. The Production and Income sub-index posted a +0.53. Employment, unemployment and Hours scored a +0.11. Sales Orders and Inventory moved higher by +0.05. Personal Consumption and Housing sub-index recorded a -0.04.
Figure 1 shows the 3MMA of the CFNAI from 2010 to present. The CFNAI has been in positive territory for only five of the 10 months through October. The persistent drag from the Personal Consumption and Housing sub-index is continuing to hold the overall index down.
Figure 2 shows the four sub-indexes of the overall CFNAI on a 3MMA basis. On a 3MMA evaluation, the Production and Income sub-index posted a +0.16. Employment, unemployment and Hours scored a +0.09. Sales Orders and Inventory moved higher by +0.09. Personal Consumption and Housing sub-index recorded a -0.06. The personal housing and consumption category continued its streak (130 months), of negative contributions to the CFNAI. The good news is that housing starts increased to 1.29 million starts on an annualized basis in October up by 155,000 units over September starts. The economy continues to produce jobs at an average of 170,000 per month in 2017, about 30,000 jobs per month less than in 2016. A tighter labor market will push wages higher which will in-turn drive stronger home sales and create more construction jobs.
Both U.S. and global economies are performing admirably. This coupled with a depreciated dollar portends continued gains for the manufacturing sector.
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.