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U.S. Economic Growth Lost Momentum in April — Chicago Fed

U.S. economic activity continued to grow in April, albeit at a slower pace than in March, the Federal Reserve Bank of Chicago said Monday.

The Chicago Fed National Activity Index decreased to 0.24 in April from 1.71 in March. The reading is below economists’ consensus, who polled by FactSet expected the indicator to come in at 1.2.

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 April follows positive economic data for the month, which generally marked a slowdown compared with March. U.S. economic activity is set to keep expanding solidly in the next months as the Covid-19 pandemic recedes and fiscal stimulus feeds through, economists say.

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

Forty-seven of the 85 individual indicators made positive contributions to the CFNAI in April, while 38 made negative contributions. Twenty-four indicators improved compared with the previous month, while 60 worsened or were unchanged.

The rise in the headline index was driven by production-related indicators, which contributed by 0.18 points, down from 0.92 points in March. Industrial production moved up 0.7% in April after increasing 2.4% in March, and manufacturing production increased 0.4% in April after rising 3.1% in the previous month.

The contribution of the employment, unemployment and hours category to the index fell to 0.05 points in April from 0.38 in March, as nonfarm payrolls increased by 266,000 in April after rising by 770,000 the prior month.

The contribution of the sales, orders, and inventories category to the CFNAI was up to 0.07 points in April from minus 0.09 in March.

The personal consumption and housing category contributed minus 0.06 to the index in April, down from 0.50 in March, amid a broad deterioration of the indicators in this category, the Chicago Fed said.

The CFNAI diffusion index edged down to 0.22 in April from 0.32 in March. 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, fell sharply to 0.07 in April from 0.35 in March. 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.

Source: Dow Jones

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