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Understanding Economic Momentum

Latest national activity index suggests more slowing in U.S.
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Economic momentum is a general term that describes something very important.

Every month the Chicago Federal Reserve produces its National Activity Index. The NAI is a broad survey. It measures 85 different factors to produce a sense of whether economic activity is growing or falling overall nationwide. Factors studied include median income, production data, employment rates, consumption rates, business inventories, housing prices and much more.

The recent release of the the latest "Chicago Fed National Activity index revealed the second consecutive decline in economic momentum for the U.S. with a drop to -0.13 in September from 0.05 in August, the lowest level since April," the Action Alerts Plus Team wrote recently on Real Money.

A score above zero indicates that the economy is expanding its productive capacity and overall potential. The economy isn’t just growing, it is also expanding its potential for future growth. A score below 0.0 indicates that the economy is growing below its potential (or contracting). This suggests that the economy has resources that are going unused or productive capacity that is lying fallow.

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This is the idea behind economic momentum. The NAI measures whether the economy is gaining steam or losing it. A business which not only uses all of its machines, but which builds a new production center to increase capacity shows positive momentum. One which has production lines sitting idle shows negative momentum. 

At -0.13, as AAP suggests, this report is the latest indicator that supply chain issues continue to hold down potential growth nationwide. 

However, it is only one economic indicator. And as the AAP team noted, "at the same time the "Dallas Fed Manufacturing Index rose from September's 14-month low of 4.6 to 14.6." 

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