The Little Known Chicago Fed National Activity Index

Have been pretty busy lately but as I was listening to a podcast on Morningstar.com where a Chicago Bank economist was interviewed over his views on the current economic situation in the US, I got pretty interested in a particular piece of content. Yes, the topics discussed were employment, consumption and housing sales. Pretty much as expected. And we know that the employment statistics in the US has been rebounding quite steadily. Although it is still far from pre-2008 levels, the figures are still pointing to a much better economic picture.

However, the more interesting part of the conversation that really caught my attention was the introduction of this Chicago Fed National Activity Index - CFNAI as a pretty good indicator of economic health. Well, for a start, I have little idea and cannot keep track of the enormous number of indices and figures that typically pour out from the US. Basically, there's some sort of a data due every day. Kind of. And so, as he was introducing this index, he mentioned that it is a combination of many economic indicators and my eyes lit up. It was also not only a Chicago-based focus but national.

A closer look online, I found that the CFNAI is a weighted average of 85 indicators of national economic activity. And it touches on data related to product and income, employment, unemployment, personal consumption, housing, sales and inventories. Wonderful! This would allow a much simpler analysis job whenever I need to know something more about the economic health of the US - the biggest economy of the world.

For those of you who are wondering what is this indicator all about, you can check it out at http://www.chicagofed.org. The latest report is available at http://www.chicagofed.org/digital_assets/publications/cfnai/2012/cfnai_march2012.pdf
And from that report, here's how the economic health of the US has been lately. The zero line represents an economy that is growing at its historical average. A positive value indicates above-average growth that is essentially what we want to see. Evidently, it does not seem anywhere correlated with current and previous year's stock prices but it still does give a good representation of the economic health we see in US. And this is definitely backed up with all the data that we know. So at least for most of us, we can gather this information as a good supplement to our trading activities so that while we are employing any sort of methods and taking positions, we are fundamentally aware of the state of the largest economy in the world.

Healthy Trading.