Chicago Fed Index Signals Below-Trend U.S. Growth in July — Evening Brief – 08.24.26
U.S. economic activity slipped below its historical growth trend in July as weakness in consumption and housing outweighed modest gains in production and business demand, according to data released Monday by the Federal Reserve Bank of Chicago.
The Chicago Fed National Activity Index fell to minus 0.08 from a revised 0.06 in June. A zero reading indicates that the economy is expanding at its historical trend rate, while negative readings signal below-average growth rather than an outright contraction.
Three of the index’s four broad categories declined from June, and two made negative contributions. Forty-five of the 85 underlying indicators detracted from the July reading.
Personal consumption and housing produced the largest drag, contributing minus 0.09 after adding 0.04 in June. The reversal coincided with continued housing-market pressure: Single-family housing starts fell 9.9% in July to their lowest level since November 2022, while pending home sales also declined.
Production-related indicators contributed 0.01, down from 0.04 in June. Sales, orders and inventories added 0.02, also easing from 0.04. Employment’s contribution improved to minus 0.01 from minus 0.05, indicating that labor-market data remained a slight drag but were less negative than a month earlier.
The index’s three-month moving average, which smooths monthly volatility, declined to minus 0.04 from a revised 0.01. The Chicago Fed constructs the index as a weighted average of indicators covering production, employment, consumption and housing, and sales and inventories.
Although the latest reading points to softer momentum, it does not suggest that a recession has begun. Historically, a three-month average below minus 0.70 following an expansion has indicated an increasing likelihood of recession.
The diffusion index, which measures how broadly strength or weakness is distributed, declined to 0.05 from 0.09. It remained above the minus 0.35 level historically associated with economic expansions, suggesting that July’s softness was not broadly recessionary.