CFNAI vs PMI: Which Growth Indicator to Use?

Both CFNAI and PMI measure economic growth, but they do it differently. Understanding when to use each helps you interpret economic data more effectively.

This article compares the two indicators and explains how VantMacro uses them in regime detection.

Quick Comparison

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CFNAI: The Comprehensive Measure

What It Is

CFNAI (Chicago Fed National Activity Index) is a weighted average of 85 existing monthly economic indicators. It covers:

• Production and income (23 indicators)
• Employment (24 indicators)
• Personal consumption and housing (15 indicators)
• Sales, orders, and inventories (23 indicators)

How to Read It

Strengths

1. Breadth: 85 indicators means it's hard for one data point to skew the reading
2. Stability: Less revision-prone than GDP or employment reports
3. Clear baseline: Zero = trend makes interpretation straightforward
4. Regime relevance: Designed for cycle analysis (not just point-in-time)

Weaknesses

1. Timeliness: Released 3 weeks after month-end
2. Backward-looking: Confirms what happened, doesn't predict what's next
3. No sector detail: Aggregate measure; can't see manufacturing vs services

VantMacro Usage

VantMacro uses CFNAI as the primary growth input for regime classification:

• CFNAI > +0.47 → Above-trend growth (bullish regimes)
• CFNAI < -0.7 → Below-trend growth (recession regimes)
• CFNAI between → Near-trend (context-dependent)

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ISM PMI: The Forward-Looking Measure

What It Is

The ISM Purchasing Managers' Index is a survey-based diffusion index. Each month, the ISM surveys ~300 purchasing managers about:

• New orders
• Production
• Employment
• Supplier deliveries
• Inventories

Respondents answer "higher," "same," or "lower" compared to last month. The PMI aggregates these into a 0-100 index.

How to Read It

Two PMI Variants

1. ISM Manufacturing PMI — Surveys manufacturers; released 1st business day
2. ISM Services (Non-Manufacturing) PMI — Surveys service firms; released 3rd business day

Services represents ~80% of the U.S. economy, so the Services PMI is often more economically significant, even if Manufacturing gets more headlines.

Strengths

1. Timeliness: First business day of the month for Manufacturing
2. Leading indicator: Survey forward-looking questions (new orders)
3. Sector clarity: Separate Manufacturing vs Services readings
4. Sub-components: New orders, employment, prices paid provide additional insight

Weaknesses

1. Narrow base: ~300 firms vs 85 indicators in CFNAI
2. Survey bias: Sentiment can overshoot reality
3. Volatility: More month-to-month noise
4. Manufacturing overweight: Headlines focus on Manufacturing (10% of economy) vs Services (80%)

VantMacro Usage

VantMacro displays ISM PMI data on the Economic Indicators page as a complementary signal:

• PMI provides early warning of directional changes
• CFNAI confirms whether the change has materialized
• Both together reduce false signals

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When to Use Each

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Practical Example

Scenario: In late 2007, ISM Manufacturing PMI fell below 50 in November, signaling contraction. CFNAI didn't turn decisively negative until January 2008.

Interpretation:

• PMI gave a 2-month lead time on the manufacturing slowdown
• CFNAI lagged but confirmed the slowdown was economy-wide
• Acting on PMI alone would have been early; waiting for CFNAI confirmation improved conviction

This is why VantMacro uses both:

• PMI for early warning
• CFNAI for regime classification

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VantMacro's Approach

Regime Detection (CFNAI)

The composite regime engine uses CFNAI to assess the "Real Cycle" dimension:

if CFNAI > 0.47:
    growth = "above_trend"
elif CFNAI < -0.7:
    growth = "below_trend"
else:
    growth = "near_trend"

This feeds into the 7-state regime classification alongside liquidity and risk inputs.

PMI Display

PMI appears on the Economic Indicators dashboard:

• ISM Manufacturing PMI (monthly, 0-100 scale)
• ISM Services PMI (monthly, 0-100 scale)
• Month-over-month change for momentum

Integration

Both indicators are tracked, but they serve different purposes:

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Common Questions

"Can I just use one indicator?"

You can, but you'll miss nuance:

• CFNAI alone is too slow for early warning
• PMI alone is too noisy for regime confirmation

"Why does VantMacro weight CFNAI more heavily?"

Because VantMacro's regime engine is designed for confirmation over speed. False signals are worse than late signals when classifying macro regimes.

"What about other PMIs (China, Europe)?"

VantMacro focuses on U.S. data for the primary regime engine. Global PMIs (China Caixin, Eurozone composite) are useful for global context but not directly fed into regime detection.

"Is PMI really leading?"

The new orders component is genuinely leading (orders precede production). The headline PMI is only mildly leading because it averages in coincident components like employment.

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Summary

Use both. Neither is "better"—they answer different questions.

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Data Sources

• Chicago Fed: CFNAI overview and interpretation — https://www.chicagofed.org/publications/cfnai/index
• FRED series: CFNAI — https://fred.stlouisfed.org/series/CFNAI
• ISM: Report On Business (PMI releases and methodology) — https://www.ismworld.org/supply-management-news-and-reports/reports/ism-report-on-business/

Methodology

• Treats CFNAI as a broad, composite measure of U.S. activity (85 indicators) and PMI as a timely diffusion index from business surveys.
• Uses CFNAI for confirmation/classification (stable but lagged) and PMI for early-warning context (timely but noisier).
• Interprets signals via trends and thresholds (expansion vs contraction), rather than point forecasts.

Limitations

• CFNAI is released with lag and can be revised; PMI is survey-based and can be skewed by sentiment and sample composition.
• The two series measure different things (hard data vs surveys), so “disagreements” can persist for months.
• Neither series provides reliable timing on its own; lead/lag relationships vary across cycles.

Further Reading

• Understanding Business Cycles — How growth indicators fit into cycle analysis
• Market Regimes Explained — The full regime classification framework

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Track Both on VantMacro

• Real-time PMI display with expansion/contraction zones
• CFNAI-driven regime classification
• Historical comparison of both indicators

View Economic Indicators →