By Xavier Fontdegloria
U.S. economic activity grew in March after falling the previous month amid strong production, personal consumption and housing data, the Federal Reserve Bank of Chicago said Thursday.
The Chicago Fed National Activity Index rose to 1.71 in March from a revised minus 1.20 in February. The figure, which is the highest since July 2020, beats economists' consensus, who polled by FactSet expected the indicator to come in at 0.90.
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.
March's CFNAI reading matches with the sharp economic improvement in the month confirmed by strong hard data such as retail sales, industrial production or payroll creation. U.S. economic activity is poised to accelerate in the next months as the Covid-19 pandemic eases and fiscal stimulus feeds through, economists say.
All four broad categories of indicators used to construct the index made positive contributions to it in March, and all four categories increased from the prior month, the Chicago Fed said.
Seventy of the 85 individual indicators made positive contributions to the CFNAI in March, while 15 made negative contributions. Sixty-nine indicators improved compared with the previous month, while 16 worsened.
The rise in the headline index was driven mainly by production-related indicators and the personal consumption and housing category, the data showed.
Production-related indicators contributed 0.63 points in March, up from minus 1.04 in February. Manufacturing production rose 2.7% in March after falling 3.7% in February, while manufacturing capacity utilization increased by 1.9 percentage points.
The personal consumption and housing category also contributed 0.63 points to the CFNAI in March, up from minus 0.21 in February. The indicators in this category broadly improved from February, the report said.
The contribution of the employment, unemployment and hours category to the index increased to 0.34 points in March from 0.12 in February. Nonfarm payrolls rose by 916,000 in March after increasing by 468,000 in February, and the unemployment rate decreased by 0.2 percentage points.
The contribution of the sales, orders, and inventories category moved up to 0.11 points in March from minus 0.06 in February.
The CFNAI diffusion index was up to 0.40 in March from 0.22 in February. 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, climbed to 0.54 in March from 0.07 in February. 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
(END) Dow Jones Newswires
April 22, 2021 08:44 ET (12:44 GMT)
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