Staff Reporter
Economic activity in the United States showed signs of slowing at the start of the year, according to data released Monday by the Federal Reserve Bank of Chicago.
The Chicago Fed National Activity Index (CFNAI), which measures overall economic momentum, dropped to -0.03 in January from 0.18 in December.
This decline indicates that growth has fallen below the historical trend, with a reading below zero suggesting the economy is expanding at a slower-than-average rate.
The report highlights weaknesses in production, personal consumption, and housing as key factors contributing to January’s slowdown. On a positive note, indicators related to employment have strengthened, reflecting the ongoing resilience of the labor market.
Additionally, uncertainty surrounding tax policy may be impacting economic decisions. Businesses and households are weighing the potential expiration of important provisions from the 2017 Tax Cuts and Jobs Act, and the possibility of increased taxes in 2026 could be prompting some businesses to reduce investment, further hindering economic momentum.
Extreme weather events have disrupted economic activity, with wildfires in Los Angeles and winter storms in the South likely impacting retail spending, especially in January.
However, an analysis of retail sales data by Bank of America suggests that the impact may not have been as severe as initially anticipated. Spending in food services remained robust, despite typically facing greater disruptions, while non-store retailers experienced a notable decline.
Another factor contributing to the weaker start of the year could be a correction following unusually strong retail sales in December. Bank of America reports that seasonally adjusted control retail sales in January were slightly higher than in November, indicating that January’s slowdown might represent a return to more normal levels after an inflated holiday season.
Persistent inflation continues to pose a challenge, with recent data showing that price pressures have not eased as quickly as expected. This raises the likelihood that the Federal Reserve will postpone rate cuts until later this year, as policymakers remain cautious about easing monetary policy prematurely.
Despite the monthly decline, some longer-term indicators point to more stable conditions. The three-month moving average of the CFNAI rose to 0.03 in January, up from -0.13 in December.
Additionally, the CFNAI diffusion index, which measures the breadth of economic changes across sectors, increased to 0.10 from -0.07 the previous month. Historically, the economy tends to be in a growth phase when this index stays above -0.35.
Overall, the report presents a mixed picture of the economy’s trajectory, highlighting strengths in the labor market alongside weaknesses in consumer-driven sectors.
