CHICAGO (Dow Jones/AP) - U.S. economic growth trended near average in June, supported by growth in production and income, and sales, orders and inventories, according to data released Monday by the Federal Reserve Bank of Chicago.
The Chicago Fed National Activity Index for June was at its highest level of the year at +0.11, up from the May reading of -0.32. The May figure was revised lower from a previously reported -0.22, the Chicago Fed said.
The index is a weighted average of 85 indicators of national economic activity. The indicators are drawn from four broad categories of data: production and income; employment, unemployment, and hours; personal consumption and housing; and sales, orders, and inventories.
A zero value for the index indicates that the national economy is expanding at its historical trend rate of growth; negative values indicate below-average growth; and positive values indicate above-average growth.
''The CFNAI continues to indicate that the economy is expanding at a moderate pace,'' said Charles Evans, research director at the Chicago Fed.
On a longer-term basis, the three-month moving average for the index, which the Chicago Fed says provides a more consistent picture of national economic growth given the volatility in month readings, was -0.15 in June, compared with -0.17 in May.
The June three-month average suggests national economic activity was below its historical trend, and that there should be little inflationary pressure over the coming year, the Chicago Fed said.
In his semiannual monetary policy report to Congress last week, Federal Reserve Chairman Ben Bernanke said that inflation remains the Fed's primary concern. Although recent economic data reports have been largely mixed, the market is focused on the potential systemic risks posed by the subprime mortgage sector, and whether such risks could force the Fed to implement rate cuts to add liquidity to the market.
The Federal Open Market Committee has held its key benchmark federal funds rate at 5.25 percent for its last eight policy-setting meetings. Interest rate futures traders expect the Fed's next move to be a rate cut to 5 percent, which is expected as early as the fourth quarter, but not priced into the market with complete certainty until the second quarter of 2008.
Meantime, according to the Chicago Fed's report Monday, two of the categories comprising the index—production and sales, orders and inventories—made positive contributions, while the employment and housing and consumption indicators were negative.
Production-related indicators were +0.22 in June, versus -0.18 in May. The Chicago Fed noted that total industrial production increased by 0.5 percent in June, after falling 0.1 percent the previous month. Additionally, manufacturing capacity utilization increased to 80.3 percent in June, from 79.9 percent in May.
The sales, orders and inventories category made a positive contribution of +0.03 to the index in June, after being -0.02 in May.
Employment-related indicators weighed on the index with a negative contribution of -0.08 in June, compared with being flat the previous month. The Chicago Fed noted that nonfarm payroll employment added 132,000 jobs in June, compared with the 190,000 gain in May.
Consumption and housing indicators were -0.06 in June, the same contribution from the previous month. The Chicago Fed noted that housing permits dropped 8.1 percent in June, while housing starts increased 2.2 percent.
Overall, 50 of the 85 individual indicators used to measure the index made positive contributions, while 35 were negative contributors. The report was constructed with data available as of July 18, when 49 of the 85 indicators had been published. Estimates are used for unavailable data in constructing the index.