By Xavier Fontdegloria


The U.S. economy continued to grow in August above its average but at a slower pace compared with the previous three months, data from the Federal Reserve Bank of Chicago showed Monday.

The Chicago Fed National Activity Index came in at 0.79 in August, down from an upwardly revised 2.54 in July. Economists polled by FactSet expected the index to stand at a higher 1.2.

The index, which plunged to its lower reading ever in April amid strict lockdowns to contain the spread of the coronavirus, rebounded strongly in the next months as restrictions eased and despite the surge in infections across the country. However, the rates of increase have been diminishing over the months, signaling that the initial strong rebound is losing steam.

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.

In August, two out of four broad categories the index is made up of contributed positively, but all four categories decreased from July.

Forty-five of the 85 individual indicators made positive contributions to the CFNAI in August, while 40 made negative contributions. Twenty-nine indicators improved in the last month, while 56 indicators deteriorated, the Chicago Fed said.

The CFNAI diffusion index was also down to 0.62 in August from 0.73 in July. Despite the fall, the reading still signals that national economic growth is increasing, as it is well 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, decreased to 3.05 from 4.23 in July. 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.

For CFNAI August reading, production-related indicators contributed 0.23 points, down from 1.26 in July, as industrial production slowed in August compared with the previous month.

Employment-related indicators contributed 0.63 points to the index, slightly down from 0.65 in July. While nonfarm payrolls moved up by 1.4 million in August--less than the 1.7 million registered in July-- the unemployment rate fell by 1.8 percentage points in the month, more than the 0.9 percentage points decline in July.

The personal consumption and housing category contributed negatively, though marginally, to the CFNAI, by minus 0.04 points, compared with 0.09 points in July, as housing starts decreased in the month.

Sales, orders and inventories category also swung to negative territory in August, moving down to minus 0.04 from 0.53 the prior month, the Chicago Fed said.


Write to Xavier Fontdegloria at


(END) Dow Jones Newswires

September 21, 2020 08:44 ET (12:44 GMT)

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