Nebraska Monthly Economic Indicators: May 15, 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 1.99% in April 2015,
marking its fourth increase in the last five months. The sharp increase in the LEI-N, which predicts
economic growth in the state six months in the future, portends strong economic growth in
Nebraska in the second half of 2015. Business expectations are one reason for the positive
outlook. Respondents to the monthly Survey of Nebraska Business were very optimistic about
sales and employment over the next six months. The business outlook, in fact, was the strongest
recorded in the monthly survey, which began in Septembe 2011. A stabilizing U.S. dollar also
contributed to the positive outlook. After 8 months of increase, the value of the U.S. dollar fell in
April. The rising U.S. dollar had created a significant challenge for Nebraska exporters. Initial
claims for unemployment insurance also fell sharply in April, suggesting a strengthening labor
market. There was little change in other components of the LEI-N, including building permits for
single-family homes, airline passengers counts or manufacturing hours.
Leading Economic Indicator – Nebraska
Figure 1 shows the change in the Leading Economic Indicator – Nebraska (LEI-N) in April 2015, compared
to the previous month. The LEI-N predicts economic growth six months into the future. The LEI-N rose
by 1.99% during April.
Figure 1: Change in LEI-N
April 2015
2.44%
1.22%
0.00%
Rapid Growth
1.99%
Moderate Growth
Moderate Decline
-1.22%
Rapid Decline
-2.44%
Figure 2 shows the change in the LEI-N over the last 6 months. The LEI-N declined sharply in November,
2014 but recovered in December. The LEI-N then improved in the first quarter of 2015, rising in January
and February and remaining close to unchanged in March. The solid first quarter was followed by the
sharp increase in the LEI-N during April.
1
Figure 2: Change in LEI - N
Last 6 Months
2.44%
1.99%
1.29%
1.22%
0.65%
0.66%
0.00%
-0.02%
-1.22%
-1.33%
-2.44%
Nov 14
Dec 14
Jan 15
Feb 15
Mar 15
Apr 15
Figure 3 shows the components of change in the Leading Economic Indicator – Nebraska during April 2015.
The change in the overall LEI–N is the weighted average of changes in each component (see page 5). The
LEI-N rose primarily because of three components: business expectations, the value of the U.S. dollar, and
initial claims for unemployment insurance. Business expectations, as measured by the April Survey of
Nebraska Business, were very strong. Expectations for sales and employment growth were the highest
ever recorded in the monthly survey, which was first taken in September 2011. A stabilizing U.S. dollar
also contributed to the positive outlook. After 8 months of increase, the value of the U.S. dollar
fell in April. A stable or falling U.S. dollar is beneficial for Nebraska’s large export sector. There
also was a sharp drop in initial claims for unemployment insurance, which suggests a
strengthening labor market. Among other components of the leading indicator, there was little
change in single-family home building permits, airline passengers counts or manufacturing hours.
Note that the trend adjustment component pictured in Figure 3 is discussed on page 5.
Figure 3: LEI-N Components of Change
April 2015
2.44%
0.31%
1.22%
0.02%
0.94%
0.58%
0.02%
0.12%
0.00%
0.00%
-1.22%
Trend Adjustment
Business Expectations
Manufacturing Hours
Initial UI Claims
Dollar Exchange Rate
Airline Passengers
Building Permits
-2.44%
2
Coincident Economic Indicator – Nebraska
The Coincident Economic Indicator - Nebraska (CEI-N) is a measure of the current size of the Nebraska
economy. The CEI-N fell by 0.77% during April, as seen in Figure 4.
Figure 4: Change in CEI-N
April 2015
2.58%
1.29%
0.00%
Rapid Growth
Moderate Growth
Moderate Decline
-1.29%
-0.77%
Rapid Decline
-2.58%
The decline in the CEI-N followed a series of monthly increases, as seen in Figure 5. In fact, the CEI-N had
grown for seven consecutive months before the April decline. Growth has moderated, however, in 2015.
Looking at data for the January through April 2015 period, growth has been solid, but not rapid, so far this
year.
Figure 5: Change in CEI-N
Last 6 Months
2.58%
1.49%
1.29%
0.61%
0.51%
0.34%
0.51%
0.00%
-1.29%
-0.77%
-2.58%
Nov 14
Dec 14
Jan 15
Feb 15
Mar 15
Apr 15
As seen in Figure 6, the decline in the CEI-N was broad-based. All four components declined during April.
There was a modest decline in real private wages during the month. There also was a modest decline in
business conditions, as respondents to the April Survey of Nebraska Business reported some weakness in
sales at their businesses in recent months. There was a larger decline in agricultural commodities in
Nebraska in April. Corn prices remained low and beef prices began to moderate from recent highs. There
also was a significant decline in electricity sales, even after adjusting for weather and other seasonal
factors. 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
April 2015
2.58%
1.29%
-0.08%
-0.20%
-0.09%
Agricultural
Commodities
Business
Conditions
-1.29%
Private
Wages
0.00%
-0.39%
Electricity
Sales
-2.58%
Figure 7 shows the forecast for the CEI-N over the next six months. The forecast calls for strong economic
growth from May to October. Results are consistent with improvements in the LEI-N in four of the last five
months (see Figure 2) and suggest a stronger Nebraska economy during the second half of 2015.
Figure 7: 6-Month Forecast of
Coincident Economic
Indicator - Nebraska
1.06%
1.25%
118.00
0.43%
0.56%
0.75%
0.60%
0.10%
0.49%
116.00
0.25%
114.00
-0.25%
112.00
-0.75%
-1.25%
110.00
Apr 15 May 15 Jun 15
Jul 15
Index Growth
Aug 15
Sep 15
Oct 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
13.7147
3.4623
1.2127
10.3926
1.4834
4.4568
Variable
SF Housing Permits
Airline Passengers
Exchange Rate
Initial UI Claims
Manufacturing Hours
Survey Business Expectations
Inverse
STD
0.0729
0.2888
0.8246
0.0962
0.6741
0.2244
Coincident Economic Indicator - Nebraska
Weight
(Inverse STD
Standardize)
0.0334
0.1324
0.3781
0.0441
0.3091
0.1029
Variable
Electricity Sales
Private Wages
Agricultural Commodities
Survey Business Conditions
Standard
Deviation
4.7880
1.6850
3.2089
3.8294
Inverse
STD
0.2089
0.5935
0.3116
0.2611
Weight
(Inverse STD
Standardize)
0.1519
0.4316
0.2266
0.1899
Tables 2 and 3 show the calculation for the change in CEI-N and LEI-N between March and April 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 CEI-N 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)
Current
Previous
Difference
Weight
Contribution
Percentage
Contribution
(Relative to
Previous LEI-N)
SF Building Permits
79.55
78.88
0.67
0.03
0.02
0.02%
Airline Passengers
95.52
95.38
0.14
0.13
0.02
0.02%
U.S. Dollar Exchange Rate
(Inverse)
90.85
89.90
0.95
0.38
0.36
0.31%
Initial Unemployment
Insurance Claims (Inverse)
Component
114.39
99.36
15.03
0.04
0.66
0.58%
Manufacturing Hours
97.01
97.02
-0.01
0.31
0.00
0.00%
Survey Business
Expectations 1
60.38
10.38
0.10
1.07
0.94%
0.13
0.12%
2.26
1.99%
Trend Adjustment
Total (weighted average)
1
115.87
113.62
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
117.76
120.71
-2.95
0.15
-0.45
-0.39%
Private Wage
102.69
102.88
-0.20
0.43
-0.09
-0.08%
Agricultural Commodities
153.44
154.47
-1.02
0.23
-0.23
-0.20%
-0.55
0.19
-0.10
-0.09%
-0.87
-0.77%
Survey Business Conditions
Total (weighted average)
1
1
49.45
112.69
113.56
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
80.00
CEI-N (May 2007=100)
LEI-N, 6 Month Forward (May 2007=100)
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