US National Activity Index Rebounds In May, But “V-Shaped” Recovery Still Absent

Following its biggest collapse on record (by a long, long way), the National Activity Index (produced by the Chicago Fed – CFNAI) was expected to rebound in May but remain deeply underwater.

The headline index rose to +2.61 (from a revised lower -17.89 in April), smashing the expectation of -10.00. +2.61 is a record the index going back to 1970…

Source: Bloomberg

This was led by improvements in production and employment-related indicators (57 of the 85 monthly individual indicators made positive contributions, while 28 indicators affected the index negatively).

The more-watched three-month average (because it smooths out fluctuations) is still negative (-6.65) indicating growth is dramatically below trend.

However, the diffusion index remains disappointing, signaling overall momentum remains negative on a longer-term basis…

Source: Bloomberg

(As CFNAI notes, a diffusion index of this type is one way in which to capture the “momentum” behind recent changes in the index, given that changes in the index driven by a large percentage of indicators pushing in the same direction tend to be more persistent than those driven by a small number of indicators.)

We suspect optimism for the “V-shaped” rebound is overdone.