The pace of U.S. economic growth accelerated in February as the CFNAI surged by 0.88, up from a +0.02 rise in January. On a three month moving average, (3MMA) basis the CFNAI was higher by +0.37. This was the sixth consecutive month of positive readings. There were strong contributions from the production and income component and the employment, unemployment and hours component
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 February. The Production and Income sub-index posted a +0.50. Employment, unemployment and Hours scored a +0.31. Sales Orders and Inventory edged higher by +0.09. Personal Consumption and Housing sub-index recorded a -0.02.
Figure 1 shows the 3MMA of the CFNAI from 2010 to present. The CFNAI has now been in positive territory for eight of the last 12 months through February. The Personal Consumption and Housing sub-index continues to drag the overall index down. Note that the last five months, (highlighted bubble) exhibit the strongest performance since the great recession.
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. Production and Income has recorded five consecutive monthly gains. Industrial production’s 1.1% increase in February helped drive the solid increase. Employment, unemployment and Hours scored a +0.19. This sub-index has been in positive territory on 3MMA basis for 16 months. February’s 313,000 gain in payrolls coupled with January’s 239,000 increase are lifting the employment category. Sales Orders and Inventory moved higher by +0.09, making a string of nine months of gains. The gain in the ISM Manufacturing Inventories Index from 52.3 to 56.7 helped drive the modest advance. Personal Consumption and Housing sub-index recorded a -0.06. The personal housing and consumption category continued its streak, now at 133 months of negative contributions to the CFNAI going back all the way back to May 2007.
Manufacturing is off to a good start in 2018, aided by a strong global economy and a depreciated U.S. dollar. Recovering energy prices are helping increase capacity utilization. Mining and motor vehicles posted a strong showing and the labor market has strong momentum. In addition stimulus from government tax cuts is kicking-in. Areas of concern include: The stubbornly low number of housing starts despite low inventories in the lower price tiers and fear of a global trade war.
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.