Economic Growth Is Below Trend: Is Stagnation the New Normal?



The economy stumbled in February, according to the Federal Reserve Bank of Chicago’s National Activity Index (CFNAI). The index’s three-month moving average fell from +0.02 in January to -0.18 in February, its first negative reading in six months, suggesting below-trend economic growth.

But the decline in the three-month moving average is somewhat misleading. The headline index actually moved up from -0.45 in January to +0.14 in February. A strong reading of +0.75 in November, which was dropped from the moving average calculation this month, propped up negative results in January and December. Taken in isolation, February’s numbers were actually OK — they were just not good enough to compensate for weakness in the previous two months.

Fifty-four of the 85 individual indicators tracked by CFNAI made positive contributions to the index in February, while 31 made negative contributions. Fifty-one of these indicators improved month-to-month, while 33 declined and one remained unchanged. Both production and manufacturing output indicators increased in February, and manufacturing capacity utilization increased from 75.9 percent to 76.4 percent.

Employment indicators were down, contributing -0.02 to CFNAI in February. The Chicago Fed made note of the fact that the headline unemployment rate edged up 0.1 percentage point and that nonfarm payrolls increased by 175,000.

This idea of below-trend economic growth was recently popularized by former Treasury Secretary Lawrance Summers. Speaking at the World Economic Forum in November, Summers suggested that the economy could be facing the specter of secular stagnation, or a prolonged period of slow economic growth, much like the recovery that the U.S. has meandered through over the past five years.