Economic growth 'increased substantially' in May as employment improved, Chicago Fed says

• A sharp improvement in nationwide employment drove the Chicago Fed's National Activity Index above its historical average in May, according to a Monday report.
• The gauge jumped to 2.61 last month from a record-low -17.89. The reading suggests "economic growth increased substantially in May," the central bank said.
• Employment-related indicators drove 1.53 to the index's reading, mirroring May's surprisingly positive jobs report.

A pick-up in employment drove a sharp rebound in US economic activity throughout May, the Federal Reserve Bank of Chicago said Monday.

The central bank's National Activity Index leaped to 2.61 last month from -17.89 in April, offering investors the latest hint of a V-shaped economic recovery. The gauge's three-month moving average rose to -6.65 from -7.5.

Readings below 0 imply growth falling below its historical average, while readings above the threshold suggest better-than-average growth. The Fed's latest release suggests "economic growth increased substantially" last month after plummeting amid coronavirus shutdowns.

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The Chicago Fed's Diffusion Index, which serves as a separate three-month average, climbed to -0.43 from -0.58. Periods of economic expansion are associated with the index's three-month moving average reaching -0.7 and its diffusion index breaking through -0.35.

All four of the index's categories — production and income, personal consumption and housing, sales and inventories, and employment — improved through the month after reaching consecutive record-lows in March and April. Employment gains added 1.53 to the index's gains, echoing the surprisingly positive trend first revealed in May's jobs report.

The subcategory also drove the majority of the index's March decline as coronavirus fallout pushed the unemployment rate to its highest level since the Great Depression.

The National Activity Index measures 85 indicators of economic health. May data showed 72 of the metrics swinging higher and 13 falling. Of those improving from their April levels, 17 still made negative contributions to the overall gauge, the Fed said.

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