Economic Growth Slows Modestly
Chicago Fed Activity Index Slips Below Trend, Signaling Slower Yet Resilient Growth
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Key Points
1
Of the 85 individual indicators underlying the August index, 39 made positive contributions and 46 made negative contributions; 34 indicators improved from July, 49 deteriorated and two were unchanged.
2
The CFNAI Diffusion Index, calculated using a three-month moving average, declined to 0.02 in August from 0.04 in July, despite the broader CFNAI-MA3 rising to 0.01.
3
The August reading was below trend for the third time in four months, following slightly above-trend activity in July; it remained well above the October 2025 low of -0.50 and August 2025 reading of -0.36.
4
The data prompted modest dollar buying: dollar-yen rose from 157.17 to 157.37, euro-dollar declined from $1.1496 to $1.1484, and GBP/USD slipped from $1.3400 to $1.3392.
5
Market commentary characterized the release as consistent with a soft-landing backdrop, arguing that the moderate reading supported a measured Federal Reserve easing path rather than aggressive rate-cut expectations.
The Chicago Fed National Activity Index slid to -0.04 in August, marking the third time in four months that economic growth fell below its historical trend Haver Analytics. The decline from July's upwardly revised +0.08 reading signals moderating momentum, though the index remains far above recession-warning levels and the broader three-month average improved to +0.01 VT Markets.
Production and sales weakened in August, with production measures contributing -0.07 to the index while employment and personal consumption each added +0.01 BigGo Finance. The modest reading prompted dollar buying, as currency traders saw it as evidence the Federal Reserve can proceed with measured rate cuts rather than aggressive easing VT Markets.
Manufacturing Momentum Fades Across Regions
Manufacturing weakness was the main drag on August activity. The Chicago index's production component fell to -0.07, reflecting broad softness in the sector Haver Analytics. Regional Fed surveys confirm the trend: Richmond's Manufacturing Shipments Index plunged to -5 from 11, a 16-point decline that marks a sharp shift from expansion into contraction TipRanks.
Service Sector Shows Signs of Recovery
Not all regions are struggling equally. Philadelphia's nonmanufacturing index rebounded sharply to 22.0 in September after posting -8.2 in August Philadelphia Fed. The swing suggests service-sector optimism may be re-emerging, even as manufacturing continues to soften across the country.
Mixed Signals Support Soft-Landing Case
Of the 85 indicators feeding the Chicago index, only 39 improved while 49 deteriorated Haver Analytics. Yet the reading remains well above the October 2025 low of -0.50 and August 2025's -0.36, suggesting the economy is slowing but not tipping into recession VT Markets.
The data reinforced investor confidence in a soft landing. Dollar-yen jumped to 157.37 from 157.17, while the euro fell to $1.1484 from $1.1496 BigGo Finance. Market analysts view the August reading as consistent with a Federal Reserve easing path that is measured and gradual rather than emergency-level rate cuts.
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