U.S. Economic Activity Accelerates in January -- Chicago Fed

The U.S. economy gathered momentum in January compared with the previous month driven by stronger consumption and housing data, the Federal Reserve Bank of Chicago said Monday.

The Chicago Fed National Activity Index increased to 0.66 in January from a revised 0.41 in December, suggesting that the U.S. economy grew above trend and at a quicker pace than that of the previous month. The figure beats economists' consensus, who polled by FactSet expected the indicator to come in at 0.15.

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.

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

Fifty-three of the 85 individual indicators made positive contributions to the CFNAI in January, while 32 made negative contributions. Forty-nine indicators improved from December to January, while 36 indicators deteriorated.

The uptick in the headline index was driven mainly by the contribution of the personal consumption and housing category, which rose to 0.35 points in January from minus 0.06 in December.

Production-related indicators also contributed positively to the index, albeit less than the previous month. The category provided 0.28 points to the CFNAI in January, down from 0.37 in December. Industrial production increased 0.9% in January after rising 1.3% in December.

Employment-related indicators contributed by a marginal 0.01 points to the CFNAI in January, down slightly from 0.05 in December, as payrolls increased by 49,000 in January after falling by 227,000 in the previous month.

Sales, orders and inventories category contributed 0.02 points in January, down from 0.05 the prior month.

The CFNAI diffusion index was down to 0.34 in January from 0.49 in December. 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, declined to 0.47 in January from 0.60 in December. 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.

Write to Xavier Fontdegloria at xavier.fontdegloria@wsj.com

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  02-22-21 0844ET
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