The Midwest Manufacturing Index: The Chicago Fed's New Regional Economic Indicator
The Federal Reserve Bank (FRB) of Chicago and the community that it serves—the Seventh Federal Reserve District—share a common interest in monitoring regional manufacturing activity on a timely basis. In the process of formulating monetary policy, the Bank is concerned about how economic activity in the Seventh District differs from the nation and how monetary policy affects that difference. Manufacturers need to know how regional economies are performing, in order to interpret their own shipments data and plan production schedules. Local governments must be aware of any changes in economic activity that translate into declining revenues or rising demand on expenditures.
Starting in the September issue of the new Chicago Fed Letter, the FRB of Chicago will publish a unique monthly index of manufacturing activity for its entire five-state District (see Figure 1)—the Midwest Manufacturing Index (MMI, Figure 2). While more or less following the same cyclical pattern as the Federal Reserve Board's Index of Industrial Production, two aspects of the MMI are noteworthy. First, the MMI shows a much stronger recovery in manufacturing activity since the last recession than is suggested by manufacturing employment expansion. Second, the MMI has a markedly different trend than the Board's Index. Manufacturing activity in the Seventh District has been on a gradual decline since at least 1973 (the starting point of the MMI), while for the nation as a whole, manufacturing activity has been generally expanding.