Nebraska Monthly Economic Indicators: April 17, 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 0.08% in March 2015,
marking its fourth consecutive monthly increase. The increase in the LEI-N, which predicts
economic growth in the state six months in the future, suggests that growth will be solid in
Nebraska in the second half of 2015. Three of six components of the leading economic indicator
rose during March. Respondents to the Survey of Nebraska Business were optimistic about sales
and especially optomistic about employment over the next six months. There also was a solid
increase in building permits in March, on a seasonally-adjusted basis, and a slight increse in airline
passenger countx. Among declining components of the indicator, there was a fall in
manufacturing hours during March. There also were diminished expectations for export activity.
Specfically, a rising value for the U.S. dollar increases international competition for the state’s
exporting businesses in agriculture and manufacturing. March was the eighth consecutive month
in which the value of the U.S. dollar increased.
Leading Economic Indicator – Nebraska
Figure 1 shows the change in the Leading Economic Indicator – Nebraska (LEI-N) in March 2015,
compared to the previous month. The LEI-N predicts economic growth six months into the future. The
LEI-N rose by 0.08% during March.
Figure 1: Change in LEI-N
March 2015
2.44%
1.22%
0.00%
Rapid Growth
Moderate Growth
0.08%
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 rose consistently during 2015. Note that the LEI-N value
for February was revised upward from a 0.01% increase, in last month’s report, to a solid increase of 0.69%
in the current report. This was due to upward revisions in building permits and manufacturing hours.
1
Figure 2: Change in LEI - N
Last 6 Months
2.44%
1.35%
0.72%
1.22%
0.69%
0.08%
0.03%
0.00%
-1.22%
-1.33%
-2.44%
Oct 14
Nov 14
Dec 14
Jan 15
Feb 15
Mar 15
Figure 3 shows the components of change in the Leading Economic Indicator – Nebraska during March
2015. The change in the overall LEI–N is the weighted average of changes in each component (see page
5). Rising components included building permits and business expectations. Strong business expectations
included a solid outlook for sales growth and a strong outlook for employment growth, among the
respondents to the March Survey of Nebraska Business. There also was a modest increase in airline
passenger counts. There were three declining components of the LEI-N. The value of the dollar rose during
March, which is a negative for export-oriented businesses in the state. This is because a rising dollar hurts
the competitive position of U.S. businesses relative to foreign competitors. There also was a decline in
manufacturing hours during the month, and an increase in initial claims for unemployment insurance.
Note that the trend adjustment component pictured in Figure 3 is discussed on page 5.
Figure 3: LEI-N Components of Change
March 2015
2.44%
1.22%
0.61%
0.28%
0.04%
0.11%
-0.29%
-0.14%
Manufacturing
Hours
-1.22%
Initial UI Claims
0.00%
-0.54%
Trend Adjustment
Business
Expectations
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 rose by 0.26% during March, as seen in Figure 4.
Figure 4: Change in CEI-N
March 2015
2.58%
1.29%
0.00%
Rapid Growth
Moderate Growth
0.26%
Moderate Decline
-1.29%
Rapid Decline
-2.58%
As seen in Figure 5, the economic growth rate moderated in Nebraska in early 2015. The CEI-N grew
rapidly during the fourth quarter of 2014, particularly during October and December. However, the
growth rate declined during the first quarter of 2015. This trend suggests solid, but not rapid growth in
the Nebraska economy during 2015.
Figure 5: Change in CEI-N
Last 6 Months
2.58%
2.16%
1.50%
1.29%
0.65%
0.59%
0.32%
0.26%
Feb 15
Mar 15
0.00%
-1.29%
-2.58%
Oct 14
Nov 14
Dec 14
Jan 15
As seen in Figure 6, two of four components of the CEI-N rose solidly during March. First, there was an
increase in electricity sales during March, even after adjusting for weather and other seasonal factors.
Second, respondents to the March Survey of Nebraska Business reported improving business conditions,
in particular a solid increase in employment at their businesses in recent months. Among declining
components, there was a modest decrease in real private wages in Nebraska during March. Private wages
reflects real hourly wages and hours worked, as well as employment. This weak performance is consistent
with the poor national jobs report for March. There also was a slight decline in the value of agricultural
commodities in Nebraska in March, as both corn and beef prices dropped modestly during the month. 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
March 2015
2.58%
1.29%
0.33%
0.35%
-0.38%
-0.05%
Agricultural
Commodities
-1.29%
Private
Wages
0.00%
Business
Conditions
Electricity
Sales
-2.58%
Figure 7 shows the forecast for the CEI-N over the next six months. The forecast calls for consistent
economic growth beginning in May, with monthly growth rates which are similar to those seen during the
first three months of 2015. Results therefore suggest modest growth for the Nebraska economy during
2015. Results also are consistent with growth in the LEI-N over the last four months (see Figure 2).
Consistent growth in the LEI-N portends solid growth in the LEI-N later in the year.
Figure 7: 6-Month Forecast of
Coincident Economic Indicator - Nebraska
1.25%
116.00
0.76%
0.75%
0.27%
0.34%
115.00
0.28%
0.15%
0.25%
114.00
-0.25%
-0.75%
113.00
-0.03%
-1.25%
112.00
Mar 15 Apr 15 May 15 Jun 15
Index Growth
Jul 15
Aug 15
Sep 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
Variable
SF Housing Permits
Airline Passengers
Exchange Rate
Initial UI Claims
Manufacturing Hours
Survey Business Expectations
Standard
Deviation
13.7948
3.4645
1.2140
10.4029
1.4743
4.4425
Inverse
STD
0.0725
0.2886
0.8237
0.0961
0.6783
0.2251
Coincident Economic Indicator - Nebraska
Weight
(Inverse STD
Standardize)
0.0332
0.1321
0.3771
0.0440
0.3105
0.1031
Variable
Electricity Sales
Private Wages
Agricultural Commodities
Survey Business Conditions
Standard
Deviation
4.8088
1.6993
3.2159
3.8392
Inverse
STD
0.2080
0.5885
0.3110
0.2605
Weight
(Inverse STD
Standardize)
0.1520
0.4302
0.2273
0.1904
Tables 2 and 3 show the calculation for the change in CEI-N and LEI-N between February and March 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 0.11% 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
85.95
76.23
9.72
0.03
0.32
0.28%
Airline Passengers
91.66
91.34
0.32
0.13
0.04
0.04%
U.S. Dollar Exchange Rate
(Inverse)
89.90
91.52
-1.62
0.38
-0.61
-0.54%
Initial Unemployment
Insurance Claims (Inverse)
98.34
105.92
-7.58
0.04
-0.33
-0.29%
Manufacturing Hours
98.99
99.50
-0.51
0.31
-0.16
-0.14%
Survey Business
Expectations 1
56.79
6.79
0.10
0.70
0.61%
0.13
0.11%
0.09
0.08%
Component
Trend Adjustment
Total (weighted average)
1
113.96
113.87
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
Electricity Sales
120.67
Private Wage
101.83
Agricultural Commodities
154.47
Survey Business Conditions 1
Total (weighted average)
1
Difference
Weight
118.20
2.47
0.15
0.38
0.33%
102.82
-0.99
0.43
-0.42
-0.38%
154.72
-0.25
0.23
-0.06
-0.05%
2.10
0.19
0.40
0.35%
0.29
0.26%
52.10
113.14
112.85
Contribution
Percentage
Contribution
(Relative to
Previous CEI-N)
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
80.00
CEI-N (May 2007=100)
LEI-N, 6 Month Forward (May 2007=100)
6