Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=214364
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Sonali Basak/MEDILL

The index shows economic growth in the three month period, but this doesn't mean the economy is strong.


Chicago Fed reports disappointing economic trends

by Sonali Basak
Jan 22, 2013


The Chicago Federal Reserve Bank reported slower than expected economic growth for December, largely due to a decrease in industrial production and manufacturing since November.

The Chicago Fed national activity index is released monthly and positive numbers show that the economy is moving at an above-average rate. The overall index decreased to +0.02 from +0.27 in November. In the year-ago period, the index stood at +0.67.

“Consumer indicators show the market has reacted relatively positively but this doesn’t mean that income growth is coming at a strong pace,” notes Nathaniel Karp, chief economist at BBVA Compass Bancshares Inc. in Birmingham, Ala. He said the decline in growth is likely to be related to the uncertainty about U.S. policy and weakness in European and Asian markets in the second half of 2012.

“There’s some cautiousness on the consumer side and the business side because there is some uncertainty with ‘What’s going to happen with my taxes?’ or ‘What’s going to be the new regulation with my industry?’ that limits the speed of the recovery.”

While employment numbers and sales, orders, and inventories showed a steady increase last month, production and housing fell short of estimates.

December showed a +0.12 increase in production, down from a +0.49 increase in November. Growth in industrial production came in at 0.3 percent, down from 1.0 percent. Manufacturing growth was measured at 0.8 percent, down from 1.3 percent.

The housing sector showed a much smaller decline in numbers at -0.17, compared with -0.14 in November.

“Industrial production and exports are showing good numbers but relative to what was showing before, not really,” Karp said. “Sooner or later, that has to slow down, you can’t keep expanding exports at double-digit numbers forever.” Karp said a slower rate of production is likely to be the new normal for the U.S.

Though the overall numbers were disappointing, U.S. employment showed gains. Civilian employment rose by 28,000 last month after falling by 51,000 in November.

The index is calculated based on 85 indicators of national economic activity of four general categories: production and income; employment, unemployment and hours; personal consumption and housing; sales, orders and inventories.

The monthly numbers tend to be more volatile than those during a three-month period.

National economic growth has steadily increased since October when the index showed a large drop largely related to Hurricane Sandy. The super storm likely played a role in the low production numbers seen in December.

Moving into 2013, the index is likely to steadily increase due to a stronger global economy, economists said. “We are standing right at a turning point,” Karp said. But then he warned: "Be careful with what the numbers tell you. What was the case before might not be the same moving forward.”