Chicago Fed National Activity Index for December 2010

As I have previously posted, I consider the "Chicago Fed National Activity Index" as the best macroeconomic measure that portends to the overall strength and direction for GDP.  Why this index? Because this index is a weighted average of 85 indicators of national economic (GDP) activity. The indicators are drawn from four broad categories of data: 1) production and income; 2) employment, unemployment, and hours; 3) personal consumption and housing; and 4) sales, orders, and inventories. A zero value for the index indicates that the national economy is expanding at its historical trend rate of growth; negative values indicate below-average growth; and positive values indicate above-average growth. Each month, the Fed of Chicago provides a monthly index number, which reflects economic activity in the latest month, and a three-month moving average. Month- to-month movements can be volatile, so the index’s three-month moving average provides a more consistent picture of national economic growth.

Now, what is the index saying for December?  According to the Fed of Chicago, "Led by gains in employment- and production-related indicators, the Chicago Fed National Activity Index increased to +0.03 in December from –0.40 in November. December marked the first time in five months that the index had a positive reading. Three of the four broad categories of indicators that make up the index made positive contributions in December, while the consumption and housing category continued to make a large negative contribution."

For December 2010, the index is encouraging, because it moved to the plus column, which indicates that GDP is expanding above its historical tend rate of growth.  However, when you look at the 3-month moving average, the index is still below its historical trend rate of growth.  And, that is still the problem.  According to the Fed of Chicago's own statement, "consumption and housing continue to make a large negative contribution to GDP." And, I don't expect that consumption and housing are going to make a positive impact on GDP anytime soon, especially for 2011.