Nebraska Monthly Economic Indicators: February 20, 2015
Prepared by the UNL College of Business Administration, Department of Economics
Authors: Dr. Eric Thompson, Dr. William Walstad
Leading Economic Indicator..…………………………………………….1
Coincident Economic Indicator……………………………………….…3
Weights and Component Shares…………………………………….…5
Performance of the LEI-N and CEI-N…………….……………………6
Summary: The Leading Economic Indicator – Nebraska (LEI-N) rose by 0.40% during January 2015.
The increase in the LEI-N, which predicts economic growth in the state six months in the future,
suggests that economic growth will accelerate in mid-2015. Three of six components of the
leading economic indicator rose during January. Respondents to the Survey of Nebraska Business
were optimistic. Respondents predicted a strong increase in sales and employment over the next
six months. There also was a decline in initial claims for unemployment insurance, which suggests
strength in the labor market. Building permits also edged up on a seasonally adjusted basis.
Among declining components, there was a slight decline in airline passenger counts and
manufacturing hours during January. The exchange rate was the largest negative factor. For the
sixth consecutive month, there was a significant increase in the value of the U.S. Dollar. The rising
value of the dollar continues to put pressure on Nebraska export businesses.
Leading Economic Indicator – Nebraska
Figure 1 shows the change in the Leading Economic Indicator – Nebraska (LEI-N) in January 2015,
compared to the previous month. The LEI-N predicts economic growth six months into the future. The
LEI-N rose by 0.40% in January.
Figure 1: Change in LEI-N
January 2015
2.42%
1.21%
0.00%
Rapid Growth
Moderate Growth
0.40%
Moderate Decline
-1.21%
Rapid Decline
-2.42%
Figure 2 shows the change in the LEI-N over the last 6 months. From August through November, the LEIN was choppy, rising one month and declining the next, with very little net increase. This suggests weak
economic growth in early 2015. However, the LEI-N has increased solidly over the last two months. This
suggests that economic growth will accelerate again in mid-2015.
1
Figure 2: Change in LEI - N
Last 6 Months
2.42%
1.70%
1.11%
1.21%
0.40%
0.27%
0.00%
-1.21%
-0.68%
-1.33%
-2.42%
Aug 14
Sep 14
Oct 14
Nov 14
Dec 14
Jan 15
Figure 3 shows the components of change in the Leading Economic Indicator – Nebraska during January
2015. The change in the overall LEI–N is the weighted average of changes in each component (see page
5). Three of six components of the LEI-N rose during January. Business expectations were optimistic.
January respondents to the Survey of Nebraska Business anticipated strong growth in sales and
employment at their businesses over the next six months. There was also an improvement in labor market
conditions in Nebraska, as indicated by a decline in initial claims for unemployment insurance. Finally,
there was modest growth in building permits for single-family homes during January. Among declining
components, there was a sharp increase in the value of the U.S. dollar during January. This is the sixth
consecutive monthly increase. A rising dollar creates a challenging environment for Nebraska’s export
businesses. There also was a modest decline in airline passenger counts and manufacturing hours during
January. Note that the trend adjustment component pictured in Figure 3 is discussed on page 5.
Figure 3: LEI-N Components of Change
January 2015
2.42%
1.21%
0.51%
0.50%
0.09%
0.12%
0.00%
-0.13%
-1.21%
-0.04%
-0.64%
Trend Adjustment
Business
Expectations
Manufacturing
Hours
Initial UI Claims
Dollar Exchange
Rate
Airline Passengers
Building Permits
-2.42%
2
Coincident Economic Indicator – Nebraska
The Coincident Economic Indicator - Nebraska (CEI-N) is a measure of the current size of the Nebraska
economy. As seen in Figure 4, the CEI-N was effectively unchanged in January, rising by 0.01%.
Figure 4: Change in CEI-N
January 2015
2.58%
1.29%
0.00%
Rapid Growth
Moderate Growth
0.01%
Moderate Decline
-1.29%
Rapid Decline
-2.58%
As pictured in Figure 5, the CEI-N grew rapidly at the end of 2014, from September through December.
Growth slowed abruptly in January, however. The Nebraska economy appears to be shifting from a period
of rapid growth in late 2014 towards a period of weak growth in early 2015.
Figure 5: Change in CEI-N
Last 6 Months
2.16%
2.58%
1.59%
0.68%
1.29%
0.56%
0.01%
0.00%
-0.01%
-1.29%
-2.58%
Aug 14
Sep 14
Oct 14
Nov 14
Dec 14
Jan 15
As seen in Figure 6, two of four components of the CEI-N rose during January. Among rising components,
there was an increase in real private wages, reflecting improvement in employment, hours worked per
week and real hourly wages. The improvement in Nebraska is consistent with improvement nationwide.
There also was a slight improvement in the value of agricultural commodities in Nebraska. Among
declining components, there was a slight drop in electricity sales during January, after adjusting for
weather and other seasonal factors. Business conditions also were somewhat negative during the month.
Respondents to the Survey of Nebraska Business reported a modest decline in sales and employment. A
detailed discussion of the components of the CEI-N and LEI-N can be found at www.cba.unl.edu in
Technical Report: Coincident and Leading Economic Indicators- Nebraska.
3
Figure 6: CEI-N Components of Change
January 2015
2.58%
1.29%
0.24%
0.04%
0.00%
-1.29%
-0.05%
-0.22%
Business
Conditions
Agricultural
Commodities
Private
Wages
Electricity
Sales
-2.58%
Figure 7 shows the forecast for the CEI-N over the next six months. After a February increase, the forecast
calls for a flat economy in Nebraska during the March through May period. These expectations are
consistent with values for the LEI-N (see Figure 2) during the September to November 2014 period.
Growth in the CEI-N will accelerate in June and July 2015, reflecting the increase in the LEI-N during the
last two months.
Figure 7: 6-Month Forecast of
Coincident Economic Indicator - Nebraska
0.71%
1.25%
113.50
113.00
0.54%
0.75%
0.03%
0.19%
0.15%
0.25%
112.50
112.00
-0.25%
111.50
-0.32%
-0.75%
111.00
-1.25%
110.50
Jan 15
Feb 15
Mar 15
Apr 15
Index Growth
May 15
Jun 15
Jul 15
Index Value
4
Weights and Component Shares
Table 1 shows the weights that were used to aggregate the individual components into the LEI-N and CEIN. The weights are the inverse of the “standardized” standard deviation of each component variable. The
term standardized simply means that the inverse standard deviations are adjusted proportionately to sum
to 1. This weighting scheme makes sense since individual components that are more stable have smaller
standard deviations, and therefore, a larger inverse standard deviation. A large movement in a typically
stable economic series would provide a more powerful signal of economic change than a large movement
in a series that regularly has large movements.
Table 1: Component Weights for LEI-N and CEI-N
Leading Economic Indicator - Nebraska
Standard
Deviation
13.8416
3.4793
1.2111
10.4376
1.4444
4.4567
Variable
SF Housing Permits
Airline Passengers
Exchange Rate
Initial UI Claims
Manufacturing Hours
Survey Business Expectations
Inverse
STD
0.0722
0.2874
0.8257
0.0958
0.6923
0.2244
Coincident Economic Indicator - Nebraska
Weight
(Inverse STD
Standardize)
0.0329
0.1308
0.3757
0.0436
0.3150
0.1021
Variable
Electricity Sales
Private Wages
Agricultural Commodities
Survey Business Conditions
Standard
Deviation
4.8097
1.6759
3.2213
3.8467
Inverse
STD
0.2079
0.5967
0.3104
0.2600
Weight
(Inverse STD
Standardize)
0.1512
0.4340
0.2258
0.1891
Tables 2 and 3 show the calculation for the change in CEI-N and LEI-N between December of 2014 and
January of 2015. Weights (from Table 1) are multiplied by the change to calculate the contribution of each
component. Contributions are converted to percentage terms and summed. Note that in Table 2 a trend
adjustment factor is utilized in calculating LEI-N. This is done because LEI-N historically under-predicts CEIN by 0.12% per month. The U.S. Leading Economic Indicator also has a trend adjustment.
T able 2: Component Contributions to the Change in Leading Economic Indicator
Leading Economic Indicator - Nebraska
Component Index Value (May 2007=100)
Component
Contribution
Percentage
Contribution
(Relative to
Previous LEI-N)
Current
Previous
Difference
Weight
SF Building Permits
65.06
62.12
2.94
0.03
0.10
0.09%
Airline Passengers
93.50
94.60
-1.10
0.13
-0.14
-0.13%
U.S. Dollar Exchange Rate
(Inverse)
92.77
94.68
-1.90
0.38
-0.71
-0.64%
Initial Unemployment
Insurance Claims (Inverse)
105.94
92.84
13.10
0.04
0.57
0.51%
Manufacturing Hours
97.31
97.46
-0.16
0.31
-0.05
-0.04%
Survey Business
Expectations 1
55.51
5.51
0.10
0.56
0.50%
0.13
0.12%
0.45
0.40%
Trend Adjustment
Total (weighted average)
1
112.79
112.33
Survey results are a diffusion Index, which is always compared to 50
T able 3: Component Contributions to the Change in Coincident Economic Indicator
Coincident Economic Indicator - Nebraska
Component Index Value (May 2007=100)
Component
Current
Previous
Difference
Weight
Contribution
Percentage
Contribution
(Relative to
Previous CEI-N)
Electricity Sales
121.21
121.59
-0.38
0.15
-0.06
-0.05%
99.24
98.62
0.62
0.43
0.27
0.24%
154.84
154.66
0.18
0.23
0.04
0.04%
-1.28
0.19
-0.24
-0.22%
0.01
0.01%
Private Wage
Agricultural Commodities
Survey Business Conditions
Total (weighted average)
1
1
48.72
111.66
111.65
Survey results are a diffusion Index, which is always compared to 50
5
Performance of the LEI-N and CEI-N
Further information is available on both economic indicators to demonstrate how well the CEI-N tracks
the Nebraska economy and how well the LEI-N leads the CEI-N. Figure 8 shows the value of CEI-N and the
real gross state product (real GDP) in Nebraska for 2001 through 2012. The comparison ends in 2012 since
this is the last year for which data on real gross state product is available. Annual real gross state product
data is provided by the Bureau of Economic Analysis, U.S. Department of Commerce, and quarterly values
were estimated using quarterly earnings data. CEI-N closely tracks Nebraska real GDP for the period. The
correlation coefficient between the two pictured series is 0.96.
Coincident Economic Indicator - Nebraska Comparison with
Nebraska Real Quarterly GDP
115.00
110.00
105.00
100.00
95.00
90.00
85.00
2001.1
2001.5
2001.9
2002.1
2002.5
2002.9
2003.1
2003.5
2003.9
2004.1
2004.5
2004.9
2005.1
2005.5
2005.9
2006.1
2006.5
2006.9
2007.1
2007.5
2007.9
2008.1
2008.5
2008.9
2009.1
2009.5
2009.9
2010.1
2010.5
2010.9
2011.1
2011.5
2011.9
2012.1
2012.5
2012.9
80.00
CEI- N ( May 2007=100)
Real GDP ( May 2007=100), SA
Figure 9 again shows the values for the CEI-N. It also graphs 6-months forward values for the LEI-N. Recall
that the LEI-N is intended to forecast the Nebraska economy six months into the future. This implies that
Figure 9 is comparing the predicted movement in CEI-N (predicted by LEI-N values six months earlier) with
the actual movement in CEI-N. In Figure 9, predicted values using the LEI-N closely track trends and
movement in the CEI-N. The correlation coefficient between CEI-N and six-month forward values of LEI-N
is 0.91.
6-Month Forward Value of Leading Economic Indicator - Nebraska
Comparison with Coincident Economic Indicator - Nebraska
115.00
110.00
105.00
100.00
95.00
90.00
85.00
2001.1
2001.4
2001.7
2001.10
2002.1
2002.4
2002.7
2002.10
2003.1
2003.4
2003.7
2003.10
2004.1
2004.4
2004.7
2004.10
2005.1
2005.4
2005.7
2005.10
2006.1
2006.4
2006.7
2006.10
2007.1
2007.4
2007.7
2007.10
2008.1
2008.4
2008.7
2008.10
2009.1
2009.4
2009.7
2009.10
2010.1
2010.4
2010.7
2010.10
2011.1
2011.4
2011.7
2011.10
2012.1
2012.4
2012.7
2012.10
2013.1
2013.4
2013.7
2013.10
2014.1
2014.4
2014.7
2014.10
2015.1
2015.4
2015.7
80.00
CEI-N (May 2007=100)
LEI-N, 6 Month Forward (May 2007=100)
6