• The Chicago Fed National Activity Index rose to +0.07 in September from -0.08, indicating growth slightly above its historical trend.
  • Production strengthened while employment remained flat and consumer spending and housing weakened, painting a mixed picture of the economy.
  • The reading suggests the U.S. economy remains resilient despite sectoral disparities, with the three-month moving average hovering near trend.

A Modest Uptick in Economic Activity

The U.S. economy showed signs of resilience in September, with the Chicago Fed National Activity Index (CFNAI) rising to +0.07 from a revised -0.08 in August, according to data released Monday. The reading, which measures overall economic activity and related inflationary pressures, suggests growth is running slightly above its historical trend. The improvement was driven primarily by stronger production, while employment remained flat and consumer spending and housing weakened. The index's three-month moving average, a less volatile measure, ticked up to +0.01, indicating the economy is operating close to trend rather than in a boom or bust phase.

Production Provides the Lift

The September uptick marks a reversal from August, when production contributed -0.07 to the index. The rebound in production aligns with other recent data showing industrial production up 2.2% year-over-year in September, compared to 1.6% in August. However, the labor market showed signs of cooling: nonfarm payroll growth slowed to 29,000 from 133,000, and the unemployment rate rose to 4.2% from 4.1%. Housing starts also declined to an annualized 1.221 million from 1.288 million, reflecting the drag from higher interest rates. The mixed signals underscore an economy that is expanding but facing headwinds in interest-sensitive sectors.

Implications for Monetary Policy

The Federal Reserve, which raised its policy rate by a quarter point to 3.75%-4.00% in September, will likely scrutinize these figures as it weighs further tightening. Near-trend activity does little to resolve the tension between restraining inflation and avoiding unnecessary damage to the labor market and housing. Fed officials have repeatedly emphasized their commitment to bringing inflation down to 2%, and the September rate hike defied calls from President Donald Trump for lower rates. Economists polled ahead of the October 27-28 meeting widely expect the Fed to hold rates steady, with a majority anticipating a December increase.

A Cautious Resilience

While the headline index turned positive, the underlying components suggest the recovery is uneven. Manufacturers and production-linked businesses may see the improvement as a positive sign, but workers and homebuilders face a less rosy picture. The Chicago Fed's recession threshold—a three-month moving average below -0.70—remains far off, but the data do not yet point to a broad-based acceleration. As such, the economy appears to be treading water rather than surging, and the coming months will reveal whether production strength can broaden into hiring, spending, and housing.

Correction: An earlier version of this article misstated the August revision. The August CFNAI reading was revised to -0.08 from the previously published -0.04.