Sunday, February 1, 2009

National activity index to be down sharply in 1H of 2009

The Chicago Federal Reserve Bank released its December National Activity Index (CNAI). Not surprisingly, the index took a tumble to -3.26, and except for September 2008, hit a low since May 1980.
This index is volatile, and normally the 3-month moving average is a better gauge of trend activity, which bounced back slightly to -2.4 from -2.56. On the surface, this is relatively good news, but like all other relatively good news these days (i.e., better than consensus expectations), one must think before she talks (hat tip, Mark Thoma). In this case, the monthly drop to -3.26 is a better signal of the CNAI trend than is the 3-month bounce.

The 3-month gain is based entirely on the surge in October industrial production, which is a highly volatile series. The CNAI grew from -3.74 to -1.16 due to the re-emergence of industrial production following the Boeing strike and hurricanes. However, since then gravity has taken its toll.

Industrial production is falling sharply; its annual growth rate is the lowest since the 1970's. And with the other major components of the CNAI - labor, consumption, housing, sales, inventories - all turning down precipitously, the 3-mo. average CNAI is likely to fall with force in the first half of 2009.

Rebecca Wilder

1 comment:

  1. Rebecca,
    Does it ever occur to you how consistant are the so many of the charts you show? All the zig-zags seem to go straight up and down but seldom in a gentle arc one way or the other. It seems that we are making snap judgements day-to-day on which way to go and not looking longer term.


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