December 2020 Chicago Fed National Activity Index

Comprehensive and frequent are two of the best characteristics for an economic indicator.  The Chicago Branch of the Federal Reserve produces one that has both attributes: The National Activity Index. Each month they combine 85 indicators, creating a snapshot of the overall U.S.  economy.  Their December 2020 release suggests it continued expanding and is now doing so at a slightly accelerating pace.

Like a month earlier, three of the four major categories added to the tally, but one of them accelerated while the others slowed.  Production related indicators added 0.44 to the total, up from 0.13 in November.  The sales, orders, and inventories group added to the headline but was a bit weaker than a month earlier.  Employment data were similar; they added to the tally but less than in the previous release as the economy lost jobs overall but managed to add employment within goods-producing industries.  The only major category to subtract from the total was personal consumption and housing.  Personal spending weakened in the period even as the housing market remained strong.

Over half of the components made positive contributions to the Chicago Fed National Activity Index (CFNAI).  Fifty-three of the 85 helped move it higher, while the remaining 32 were negative.  Forty-five indicators improved from November to December, while 40 deteriorated.  Of those improving, seven still managed negative contributions. 

America’s factory segment is leading this indicator. Industrial production was the greatest contributor to the major categories.  If this business cycle is like those of the past, this bodes well for the future of American output.  This portion of the economy tends to ebb and flow in a parallel fashion to the business cycle.  Its current direction is constructive for the overall economy and informs a lot of Atlas’ relative optimism about the first half of 2021.