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May, No. 280

This article discusses an experimental methodology for the Chicago Fed National Activity Index—a monthly index designed to gauge overall economic activity and inflationary pressure. The goal is to see how well it accounts for recent structural changes in the U.S. economy.

Last Updated: 04/16/2008

Economic Trends and the Chicago Fed National Activity Index

Scott Brave

The Chicago Fed National Activity Index (CFNAI) is a monthly index of U.S. economic activity constructed to summarize variation in 85 data series classified into four groups: production and income; personal consumption and housing; employment, unemployment and hours; and sales, orders, and inventories. Recent structural changes in several sectors of the U.S. economy raise the possibility that the current index methodology is not reflecting the recent contributions of its individual series to average economic growth as accurately as researchers at the Chicago Fed would like. The author examines this prospect and report the results of an experimental estimation methodology to account for these concerns. The author finds that, on average, over the full sample period, 1967–2007, the difference between the two CFNAI methodologies is small, but varies substantially during shorter periods of time.