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Economic Growth Nears Historical Average

The latest Chicago Fed National Activity Index [1] (CFNAI) is pointing toward economic growth near historical trend, or average. The index ticked up to  –0.02 in June from –0.03 in May, and one of the four broad categories of indicators that make up the index increased month over month as well. Additionally two of the four categories made negative contributions to the index in June. The index’s three-month moving average, CFNAI-MA3, ticked below trend, up to –0.26 in June from –0.27 in May. 

The Chicago Fed notes that employment-related factors partially drove the increase in the index. Employment-related indicators contributed +0.06 to the CFNAI in June, up from –0.08 in May. Total nonfarm payrolls rose by 224,000 in June after increasing by 72,000 in the previous month. Meanwhile, the contribution of the personal consumption and housing category to the CFNAI was unchanged at –0.05 in June. 

According to the Fannie Mae Economic and Strategic Research (ESR) Group, economic growth is expected to slow. [2] The 2019 and 2020 real GDP growth is predicted to slow to 2.1% and 1.6%, respectively. This prediction has been driven by an inverted yield curve, weak business investment, waning consumer and business sentiment, and ongoing trade and global growth concerns. The ESR Group also predicted that the Fed will cut interest rates by 25 basis points in July, followed by another 25 basis points in December. 

“As the current U.S. expansion celebrates its tenth anniversary, it does so under an economic backdrop of growing domestic and global uncertainty – and slowing growth,” said Fannie Mae SVP and Chief Economist Doug Duncan. “The heightened uncertainty, stemming in part from the seemingly intractable trade dispute between the U.S. and China, appears to have reduced business’ investment incentive, which is now poised to be a material drag on growth over the forecast period. With consumer spending the principal remaining GDP growth driver, in addition to the recent re-inversion of the yield curve suggesting that market participants expect economic activity to slow further, we believe that the Fed will take a more accommodative posture beginning with a rate cut at the July meeting of the FOMC.”