U.S. Growth Moderates as Economic Confidence Peaks

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Economic growth moderated in the U.S. in October even as confidence in growth reached a post-crisis high, new data from the Federal Reserve shows.

The Chicago Fed National Activity Index fell 15 basis points to 0.14 in October. Productivity fell as the CFNAI production indicator fell to -0.01 from +0.18 in September, indicating that total economic production was slowing. Manufacturing remained strong despite the fall in production elsewhere in the economy, seeing a 0.2% rise in productivity for the second month in a row.


Economic growth moderated in the U.S. in October even as confidence in growth reached a post-crisis high, new data from the Federal Reserve shows.

The Chicago Fed National Activity Index fell 15 basis points to 0.14 in October. Productivity fell as the CFNAI production indicator fell to -0.01 from +0.18 in September, indicating that total economic production was slowing. Manufacturing remained strong despite the fall in production elsewhere in the economy, seeing a 0.2% rise in productivity for the second month in a row.

Employment-related indicators also slowed, but remained positive at 0.16 in October, down slightly from 0.22 in September. The Chicago Fed also saw unemployment fall to 5.8% in October, though the rate of job growth is decelerating. In October, nonfarm payrolls rose by 214,000, down from 256,000 in September.

The most negative economic growth indicators were consumption and housing, which fell 0.12 in October. However, that is a lower rate of contraction than in September, when consumption and housing fell 0.17. Housing starts fell to 1 million units in October on an annualized basis, down 2.8% from the previous month.

Despite the lackluster housing growth and a deceleration in payrolls, the Chicago Federal Reserve said national economy was “near its historical trend” in October.

Sales, Inventory Growth Strong

Despite month-over-month productivity decreases, sales, orders, and inventories are showing strength in the United States. Total sales/orders/inventories rose 0.11 in October, higher than the 0.06 gain in September.

Economists closely examine indicators for sales, orders, and inventories because they show broad investment for future demand. Higher sales, inventory, and orders suggest that businesses are stocking up for more aggressive spending from U.S. consumers.

While analysts have remained decidedly mixed on how aggressive U.S. consumers will be this holiday season, the Chicago Fed indicator suggests that businesses are planning for a busy holiday shopping season.

Southern Weakness

Growth rates in different regions of the United States are diverging as economic gains become more uneven. In a separate study, the Dallas Federal Reserve announced that Texas manufacturing activity showed slower growth, with capacity utilization falling sharply from 18.1 to 9.8 in October. Meanwhile, the new orders index fell to 5.6 from 14.2. Despite positive, broader business conditions, the Dallas Fed noted that business “outlooks were less optimistic” as the company outlook index fell from 18.2 to 8.8.

Muted Inflation

The Chicago Fed noted that national markets will see “limited inflationary pressure from economic activity over the coming year,” echoing recent comments from the Federal Reserve President, Janet Yellen, who has emphasized over the last two quarters that significant slack in the labor market remained, constraining wage and price growth.

Additionally, a fall in energy costs due to cheap oil and natural gas has kept inflation muted. The Chicago Fed confirmed that the disinflation trend from last summer continues.

The Dallas Fed also saw little signs of inflation as raw materials prices fell, wages and benefits remained stagnant, and finished goods prices saw a small month-over-month increase.

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