​January 2019 Chicago Fed National Activity Index

Economic growth slowed in January 2019 according to the latest data from the Chicago Fed National Activity Index (CFNAI).  This index of 85 components dipped to minus 0.43 from after hitting +0.05 in December 2018.  Since this indicator moves quite a bit each month, Atlas pay attention to the three-month moving average; it fell to 0.0 (a reading which indicates moderate growth) from 0.16 to end the year.

Despite the slowing headline, three of the four major categories improved from a month earlier. While remaining negative, personal consumption and housing group moved up to minus 0.04 from minus 0.06 a month earlier.  Sales, orders, and inventories contributed +0.02, edging up from a neutral rating.  Rounding out the improving components, employment-related indicators added +0.05, up from +0.02 as nonfarm payrolls rose 304,000 after an uptick of 222,000 in the previous month.  So with all of these improvements, what the heck happened to the headline?

Weakening production-related indicators overwhelmed the other categories.  This segment of the report fell to minus 0.45 from +0.08 a month earlier.  Industrial production led this downturn, falling 0.6 percent.

Another way of parsing this data is to look at the CFNAI diffusion index, which is also a three-month moving average. This helps to see how the strength of weakness is spread out among the 85 components of the CFNAI.  In January thirty-five were positive, and 50 were negative.  Thirty-eight components improved, while 46 deteriorated, and one remained unchanged.  Of those improving, eleven made negative contributions.

CNFAI is another indicator showing signs of slowing.   However, slowing is different from contracting.  This indicator can still be growing even when the three-month average is negative.  In each of the last seven recessions, the three-month moving average reached reading below minus 0.7, so this indicator has a long way to go before reaching levels affiliated with actual economic turmoil.