U.S. Economic Activity Expands Above-Average in September But Loses Steam --Chicago Fed

By Xavier Fontdegloria

The U.S. economy continued to expand at an above-average rate in September but growth lost steam compared with previous months, data from the Federal Reserve Bank of Chicago showed Monday.

The Chicago Fed National Activity Index stood at 0.27 in September, down from an upwardly revised 1.11 in August. The figure came in below economists' consensus, who polled by FactSet expected the indicator to be at 0.73.

The CFNAI 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 index, which plunged to its lowest reading ever in April amid the first wave of the coronavirus pandemic, rebounded strongly in May and June as restrictions eased and the economy reopened. However, the rates of increase have been diminishing over the months, signaling that the initial strong rebound is fading.

Three of the four broad categories of indicators used to construct the index made positive contributions to it in September, and three of the four categories decreased from the prior month, the Chicago Fed said.

Fifty of the 85 individual indicators made positive contributions to the CFNAI in September, while 35 made negative contributions. Forty indicators improved from August to September, while 45 indicators deteriorated.

Production-related indicators contributed negatively to the index, by minus 0.24 points, down from 0.31 in August, as industrial production contracted by 0.6% in September.

Employment-related indicators contributed 0.35 points to the index, down from 0.71 in August. Nonfarm payrolls moved up by 661,000 in September--less than the 1.5 million registered in August-- and the unemployment rate fell by 0.5 percentage point in September, less than the 1.8 percentage point decline the previous month.

The personal consumption and housing category contributed positively to the CFNAI, by 0.09 points, as housing starts increased.

Sales, orders and inventories category ticked down to 0.07 points in September from 0.1 in August, the Chicago Fed said.

The CFNAI diffusion index was also down to 0.51 in September from 0.71 in August. Despite the fall, the reading still 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, eased to 1.33 from 3.22 in August. Month-to-month movements can be volatile, as it has occurred during the coronavirus pandemic, 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 [e-mail]

(END) Dow Jones Newswires

10-26-20 0844ET