CHICAGO (9/23/14)--A key measure of economic activity declined in August after months of consecutive growth, according to a report released Monday.
The Federal Reserve Bank of Chicago's National Activity Index (NAI) fell in August by 0.21 after increasing by 0.26 in July.
The index's growth throughout the year kept its three-month moving average up for the sixth month in a row. The gauge decelerated down to 0.07 in August from 0.20 in July.
Sluggish measures of production drove the August drop of the NAI. The gauges combined for a decline of 0.17, down from an increase of 0.24 in July. Manufacturing production fell by 0.4%, down from a previous month's uptick of 0.7%, while manufacturing capacity utilization dropped to 77.2% from 77.6%.
The employment subcomponent barely moved, dropping by 0.1 between July and August. Moody's analysts expect that number will be revised upward with expected changes next month to the 142,000 gain in nonfarm payrolls (Economy.com Sept. 22).
Sales, orders and inventories were up 0.04, while housing and consumption fell by 0.12, after declining by 0.13 in July.
Moody's said that the NAI indicates economic growth is slightly above its historical trend over the past quarter, and that inflationary pressure will be mild over the next 12 months.
The economy is adding about 200,000 jobs per month, analysts note, however, and unemployment should drop to about 5.5% by the end of next year--a development that could cause policymakers to become concerned with inflation, as consumer price index growth reaches the Federal Reserve's 2% target. The Chicago Fed also indicated that growth could soon accelerate, with the Institute for Supply Management New Orders Index up by 66.7 in August--the highest it has been since April 2004.
Moody's said that the August report by the Chicago Fed doesn't indicate that interest rate hikes are imminent, noting that reining in expansionary policy would be risky amid "uncertainty stemming from geopolitical risks and Europe's lackluster growth." The ratings and research firm expects the Federal Reserve to start increasing interest rates in the fall of 2015.