Logo Background RSS

Advertisement

Understanding the CFNAI Components

  • Written by Syndicated Publisher No Comments Comments
    April 21, 2015

    The Chicago Fed’s National Activity Index, which I reported on earlier today, is based on 85 economic indicators drawn from four broad categories of data:

    • Production and Income
    • Employment, Unemployment, and Hours
    • Personal Consumption and Housing
    • Sales, Orders, and Inventories

    The complete list is available here in PDF format.

    In today’s Chicago Fed update, we learned that two of the four broad categories of indicators that make up the index decreased from February, and three of the four categories made negative contributions to the index in March.

    A chart overlay of the complete multi-decade span of all four categories, even if we use the three-month moving averages, is quite challenging for visual clarity:

    Click to View
    Click for a larger image

    So here is a close-up view since 2000:

    Click to View
    Click for a larger image

    But a snapshot of the 21st century contains only two recessions, so it’s unclear how the individual components have behaved in during the seven recessions since the 1967 starting point for this data series.

    Here is a set of charts showing each of the four components since 1967. Because of the highly volatile nature of the data, the charts are based on three-month moving averages, a smoothing strategy favored by the Chicago Fed economists. The values for the months that the NBER subsequently identified as recession starts are also indicated.

    Click to View
    Click for a larger image

    Click to View
    Click for a larger image

    Click to View
    Click for a larger image

    Click to View
    Click for a larger image

    There’s a lot to digest in the individual charts. Clearly the first two (Production and Income and Employment, Unemployment and Hours) are the more volatile of the quartet. It is also obvious that Personal Consumption and Housing has been the biggest drag since the onset of the Great Recession. In fact, if we use the Excel default vertical axis (optimized for the data) rather than using the same vertical scale for all four components, the sustained lethargy of this CFNAI component is quite dramatic. We can readily see that it’s the chronic outlier in the quartet.

    Click to View
    Click for a larger image

    To close this dissection of the CFNAI components, let’s reassemble them for a closer look at their collective 3-month moving averages since 2007.

    Click to View
    Click for a larger image

    Check back next month for a close-up look at the latest trend directions.

    Images: Flickr (licence attribution)

    About The Author

    My original dshort.com website was launched in February 2005 using a domain name based on my real name, Doug Short. I’m a formerly retired first wave boomer with a Ph.D. in English from Duke. Now my website has been acquired byAdvisor Perspectives, where I have been appointed the Vice President of Research.

    My first career was a faculty position at North Carolina State University, where I achieved the rank of Full Professor in 1983. During the early ’80s I got hooked on academic uses of microcomputers for research and instruction. In 1983, I co-directed the Sixth International Conference on Computers and the Humanities. An IBM executive who attended the conference made me a job offer I couldn’t refuse.

    Thus began my new career as a Higher Education Consultant for IBM — an ambassador for Information Technology to major universities around the country. After 12 years with Big Blue, I grew tired of the constant travel and left for a series of IT management positions in the Research Triangle area of North Carolina. I concluded my IT career managing the group responsible for email and research databases at GlaxoSmithKline until my retirement in 2006.

    Contrary to what many visitors assume based on my last name, I’m not a bearish short seller. It’s true that some of my content has been a bit pessimistic in recent years. But I believe this is a result of economic realities and not a personal bias. For the record, my efforts to educate others about bear markets date from November 2007, as this Motley Fool article attests.
    Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInPin on PinterestShare on StumbleUponShare on RedditShare on TumblrDigg thisBuffer this pageFlattr the authorEmail this to someonePrint this page

Advertisement

Closed Comments are currently closed.
Real Time Web Analytics