By Xavier Fontdegloria


The U.S. economy expanded at an above-average rate in October at a quicker pace than that of the previous month, signaling the economy entered the fourth quarter on a stronger footing, data from the Federal Reserve Bank of Chicago showed Monday.

The Chicago Fed National Activity Index stood at 0.83 in October, up from an upwardly revised 0.32 in September. The figure is above economists' consensus, who polled by FactSet expected the indicator to be at 0.23.

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. The rates of increase have been diminishing over the months, although October's reading marked a slight pick up in activity.

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

Sixty-one of the 85 individual indicators made positive contributions to the CFNAI in October, while 24 made negative contributions. Fifty-four indicators improved from September to October, while 30 indicators deteriorated and one was unchanged.

Production-related indicators contributed 0.36 points to the CFNAI in October, up from minus 0.10 in September. Manufacturing production increased 1% in October after edging up 0.1 percent in September, and manufacturing capacity utilization increased by 0.7 percentage points in October after edging up by 0.1 percentage points in the previous month.

Employment-related indicators contributed 0.39 points to the CFNAI in October, up slightly from 0.30 in September. Nonfarm payrolls increased by 638,000 in October after rising by 672,000 in September, but the unemployment rate fell by one percentage point in October after decreasing by 0.5 percentage points in the previous month.

The personal consumption and housing category to the CFNAI moved down to minus 0.01 points in October from 0.12 points in September.

Sales, orders and inventories category contributed 0.08 points in October from a neutral value in the prior month.

The CFNAI diffusion index was down to 0.51 in October from 0.55 in September. 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, slowed to 0.75 in October from 1.37 in September. 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.


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(END) Dow Jones Newswires

November 23, 2020 09:03 ET (14:03 GMT)

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