By Xavier Fontdegloria
The U.S. economy lost momentum in June compared with the previous month, data from the Federal Reserve Bank of Chicago showed Thursday.
The Chicago Fed National Activity Index decreased to 0.09 in June from 0.26 in May. The reading missed economists’ consensus, who polled by FactSet expected the indicator to stand at 0.3.
The CFNAI index is composed of 85 economic indicators drawn from four broad categories of data: production and income; employment, unemployment and hours; personal consumption and housing; and sales, orders and inventories. A positive index reading corresponds to growth above trend and a negative index reading corresponds to growth below trend.
The CFNAI print for June follows mixed economic data in the month. Activity is set to keep expanding in the short-term, but the peak of the economic recovery from the pandemic was likely reached in the second quarter, economists say.
Three of the four broad categories of indicators used to construct the index made positive contributions to it in June, and two categories deteriorated from the prior month, the Chicago Fed said.
Forty-five of the 85 individual indicators made positive contributions to the CFNAI in June, while 40 made negative contributions. The same proportion of indicators increased and worsened, respectively, compared with the previous month.
The contribution of the employment, unemployment, and hours category to the CFNAI fell to 0.09 in June from 0.15 in May. The acceleration in nonfarm payrolls was a positive contribution, but it was partly offset by the increase in the unemployment rate to 5.9%.
The contribution of the sales, orders and inventories category to the CFNAI increased to 0.06 in June from minus 0.04 the previous month.
Production-related indicators contributed by a marginal 0.01 to the CFNAI in June, sharply down from 0.26 in May. Industrial production grew 0.4% in June, but manufacturing output decreased 0.1%.
The personal consumption and housing category contributed negatively to the index, by minus 0.08. Housing starts increased to 1.643 million units, but housing permits decreased compared with May.
The CFNAI diffusion index fell to 0.13 in June from 0.40 in May. The reading signals that national economic growth is increasing, as it is above the minus 0.35 level that historically has been associated with periods of economic growth.
The index’s three-month moving average, the CFNAI-MA3, dropped to 0.06 in June from 0.80 in May. Month-to-month movements can be volatile, so the indicator provides a more consistent picture of national economic growth. In line with the diffusion index, the CFNAI-MA3 signals the economy is in expansion territory, as a value above minus 0.70 has been associated with an increasing likelihood of economic growth.
Write to Xavier Fontdegloria at [email protected]