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Pickup in Industrial Output Buoyed U.S. in July, Chicago Fed’s Gauge Shows

A pickup in industrial production helped keep the U.S. economy from weakening further in July, according to a Federal Reserve Bank of Chicago gauge today.

The Chicago Fed national index, a weighted average of 85 economic indicators, improved to minus 0.06 in July from minus 0.38 a month earlier. The three-month average increased to minus 0.29 from June’s minus 0.54. Readings less than zero indicate “below-trend” growth in the national economy, and the gauge has been negative for four straight months.

“The message it’s flashing is you’d better be more worried about weak growth and deflation than the opposite,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York.

A three-month average of less than minus 0.7 following a period of economic expansion shows an increasing risk that a recession has begun, according to the Chicago Fed.

Production-related indicators contributed most to the index as a rebound at automakers helped boost industrial output by 0.9 percent in July.

More recent figures show the pickup in production may be short-lived. The Federal Reserve Bank of Philadelphia’s general economic index plunged in August to the lowest level since March 2009, while the New York Fed’s regional index unexpectedly contracted for a third straight month, reports showed last week.

July indicators of employment added little to the Chicago Fed’s gauge, while the category measuring sales, orders and inventories deteriorated last month.

The index is based on the work of James Stock of Harvard University and Mark Watson of Princeton University, which was published in 1999 in the Journal of Monetary Economics.

Forty-three of the 85 indicators made a positive contribution to the index in July, while 42 were negative. The gauge was derived from data available by Aug. 18, at which time 52 of the 85 indicators had been published. The remaining 33 indicators were estimated.

To contact the reporter on this story: Bob Willis in Washington at

To contact the editor responsible for this story: Christopher Wellisz at

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