The U.S. economy appears to be expanding faster than expected, raising the danger that inflation could still be accelerating, data from the Federal Reserve Bank of Chicago indicated Monday.
The Chicago Fed National Activity Index climbed to 0.47 in April from a downwardly revised 0.36 March, defying expectations that the index would drop to 0.13, which would have been an indication that the economy was slowing after the Federal Reserve’s first interest rate hike in March.
The April reading signals that the economy is growing faster than its historical trend.
The index is composed of 85 indicators that cover four broad segments of the economy: production and income; employment, unemployment, and hour worked; personal consumption and house; and sales, orders, and inventories.
All four categories contributed to the upward movement of the index, according to the Chicago Fed.
The biggest contributors in April were the production indicators, which jumped from 0.20 to 0.26 in April. A big jump in industrial production pushed this segment up in April.
CFNAI index, designed to gauge overall economic activity and inflationary pressures, is composed of 85 economic indicators from four broad categories of data: production and income; employment, unemployment and hours; personal consumption and housing; and sales, orders and inventories. In April, all four broad categories contributed positively to the index, the Chicago Fed said.
The index is designed to measure economic growth and inflation.
The labor market indicators also contributed positively in the month, although less than in March. This category added 0.10 to the index, down from 0.17 the month before. This suggests that the extremely tight labor market may be easing a bit but likely not enough to lessen the inflationary pressure. In April, there were 1.9 jobs available for every unemployed person, a record high ratio.
The personal consumption contribution moved up to 0.08 in April from 0.01 in March. This suggests that consumers have not retreated from buying despite record high inflation. Sales, orders, and inventories, which subtracted from the March figure, added 0.04 to the index in April
The CFNAI Diffusion Index, which is also a three-month moving average, moved up to a positive 0.48 in April from a positive 0.42 in March.
The Chicago Fed says that the likelihood of a period of sustained increasing inflation has historically been associated with values of the CFNAI three-month moving average above +0.70 more than two years into an economic expansion. But the current record high inflation. The index moved up all the way to 5.97 in June of 2020 as the economy snapped back from the initial pandemic lockdowns, which had sent the index all the way down to -17.97. That was the worst reading ever recorded.
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