November 2017 Chicago Fed National Activity Index
Submitted by Atlas Indicators Investment Advisors on January 3rd, 2018
America’s economy maintained its recent strength in November 2017 according to the latest headline data from the Chicago Fed National Activity Index (CFNAI). This uptick of 0.15 followed an upwardly revised tally of 0.76 in October (originally 0.65). It may appear that there was a substantial deceleration in the penultimate month, but activity related to hurricane recovery efforts boosted October’s tally, so this slowdown is not alarming. November’s figure increased the three-month moving average to 0.41 from 0.31 in the prior period.
Internals reveal mixed outcomes across the economy. Production-related indicators declined to +0.05 from +0.66; here we see industrial production growth slowing from 1.2 percent to 0.2 percent in November. Sales, orders, and inventories added +0.05 to the total, accelerating marginally from 0.04; new orders from the Institute for Supply Management led the way in this portion of the report. Employment-related indicators held steady at +0.11 as the nation’s unemployment rate remained unchanged at 4.1 percent. Finally, personal consumption and housing data were marginally weaker, -0.06 from -0.04 a month earlier; falling housing permits ushered in this decline.
Even with an improved headline figure, more components fell than increased in the period. Forty-three of the 85 individual indicators made negative contributions in the period, while 42 made positive contributions. Thirty-six of the indicators improved while 49 deteriorated. Of the improving components, 13 made negative contributions.
This latest iteration of the CFNAI is a mixed bag. The headline tally looks promising, and the three-month moving average is strong. However, the internals skew negatively as worsening components outnumbered those improving. Notwithstanding this negative bias, the current upward trend is not threatened by one month of data. The weight of the evidence continues supporting the notion that America’s economic expansion continues.
Durable Goods Orders soared in November according to data from the Census Bureau. Aircraft orders (up 31 percent in the period) provided much of the lift in the period’s 1.3 percent improvement. This most recent uptick followed an upwardly revised, albeit still disappointing, October tally of -0.4 percent (originally -1.2 percent). Versus a year earlier, orders for wares expected to last longer than three years improved by an impressive 5.4 percent.
Details within the report are not quite as uplifting as the headline figures, but no worrisome trends have developed either. Primary metal orders rose, but fabricated metal orders declined. Both machinery and computer orders dropped, but electrical equipment requisitions were higher. Transportation equipment was strong also. In all, it was a mixed bag with a slight downward bias.
Atlas’ favorite line in the report was negatively skewed as well but not to the point of concern. Orders for “nondefense capital goods excluding aircraft” (aka core durable goods orders) turned negative to -0.1 percent after gains of 2.3 and 0.8 percent in September and October respectively. Despite the monthly downtick, this proxy for business confidence has grown 5.1 percent in the past 12 months.
While November was not a very strong period for new orders, this indicator has a positive sloping trend. This longer-term upward bias is a positive for the overall economy. In particular, capital investments are moving ahead, suggesting businesses are becoming more confident in the stability of the economic expansion. As 2018 begins to unfold, Atlas will continue watching the core durable goods measure as a proxy for how companies are reacting to the recently signed tax plan. Some pundits insist it will support investment in capital equipment; this indicator should help us understand if such behavior materializes.
