With Employment, Housing and Consumption as Drags, Can Production Remain Positive?

Thanks to a tip from the West Coast Whiner, we have decided to start following the Chicago Fed index more closely as an economic indicator.

Chicago Fed National Activity Index [CFNAI] - Economic Research and Data, Federal Reserve Bank of Chicago

February economic growth near average
The Chicago Fed National Activity Index was 0.03 in February, up from –0.72 in January. The production and income category made a strong positive contribution to the index, which was offset by the negative contributions in the other three broad categories of indicators—employment, consumption and housing, and sales.

The CFNAI is a weighted average of 85 existing monthly indicators of national economic activity. It is constructed to have an average value of zero and a standard deviation of one. Since economic activity tends toward trend growth rate over time, a positive index reading corresponds to growth above trend and a negative index reading corresponds to growth below trend.

With employment, housing and consumption all acting as drags, one has to wonder how long production will be a positive contributor. The 3-month average puts growth at below-trend and continues a slowing process that began in 2004.

Disclosure: author holds put options on Research in Motion (RIMM) at time of publication.