Chicago Fed National Activity Index Shows Growth, and a Peaking In Q2

As markets search for clues on future direction, many eyes are on inflation, specifically the Personal Consumption Expenditure (PCE) or Consumer Price Index (CPI). It’s worthwhile to take a look at the Chicago Fed National Activity Index (CFNAI), which was developed specifically to predict inflation.

Utilizing a weighted average of 85 existing monthly indicators of national economic activity, the index looks at common factors to various inflation measures, and has been shown to be a useful gauge on current and future economic activity and inflation. These indicators include production and income, employment, unemployment, personal consumption and housing, among others.

The index showed mixed economic data In June, as the print decreased to +0.09 from +0.26 in May, indicating that the peak of the economic recovery was likely seen in the second quarter. Three of the four broad categories of indicators used to construct the index made positive contributions in June, 85 individual indicators made positive contributions, while the others made negative contributions.

Additionally, the CFNAI diffusion index fell in June, but still indicates that national economic growth is increasing. The three-month moving average tends to provide a more consistent view of national economic growth, and that also indicated the economy remains in expansion territory.