Nebraska Monthly Economic Indicators: July 24, 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% in June 2015, its
fifth increase in the last six months. The rise in the LEI-N, which predicts economic growth in the
state six months in the future, indicates strong economic growth in Nebraska through the end of
2015. The leading economic indicator rose because of positive business expectations for sales
and employment and an improving labor market. Respondents to the monthly Survey of
Nebraska Business were optimistic about sales growth over the next six months. Businesses also
had positive expectations for employment growth and there was a decline in initial claims for
unemployment insurance. Among other components of the leading indicator, there was little
change in building permits for single-family homes and passenger emplanements. There was a
decline in manufacturing hours and an increase in the value of the U.S. dollar. A rising dollar
creates headwinds for the state economy by weakening the competitive position of Nebraska
export businesses in manufacturing and agriculture.
Leading Economic Indicator – Nebraska
Figure 1 shows the change in the Leading Economic Indicator – Nebraska (LEI-N) in June 2015, compared
to the previous month. The LEI-N predicts economic growth six months into the future. The LEI-N rose
by 0.40% during June.
Figure 1: Change in LEI-N
June 2015
2.44%
1.22%
0.00%
Rapid Growth
Moderate Growth
0.40%
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 has risen five of the last six
months. The modest drop in March is more than outweighed by increases in the other months. The
consistent increase in the LEI-N suggests that there will be strong growth in the Nebraska economy
through the end of the year.
1
Figure 2: Change in LEI - N
Last 6 Months
2.44%
1.22%
1.78%
0.60%
0.67%
0.64%
0.40%
0.00%
-0.44%
-1.22%
-2.44%
Jan 15
Feb 15
Mar 15
Apr 15
May 15
Jun 15
Figure 3 shows the components of change in the Leading Economic Indicator – Nebraska during June
2015. The change in the overall LEI–N is the weighted average of changes in each component (see page
5). The leading indicator rose because businesses were optimistic about sales growth for the next six
months and also positive about job growth. Respondents to the June Survey of Nebraska Business had
optimistic expectations for sales growth and positive expectations for job growth. There also was a drop
in initial claims for unemployment insurance during June, another sign of strength in the Nebraska labor
market. Among declining components of the LEI-N, there was a drop in manufacturing hours during
June. Further, there was an increase in the value of the U.S. dollar. A rising U.S. dollar creates
competive pressure for Nebraska exporters in agricultural, manufacturing and other industries.
There was little change in the count of passenger enplanements and building permits for singlefamily homes during June. Note that the trend adjustment component pictured in Figure 3 is
discussed on page 5.
Figure 3: LEI-N Components of Change
June 2015
2.44%
0.48%
1.22%
0.29%
0.11%
0.00%
-1.22%
-0.02%
-0.04%
-0.18%
-0.24%
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 rose by 0.60% during June, as seen in Figure 4.
Figure 4: Change in CEI-N
June 2015
2.58%
1.29%
0.00%
Rapid Growth
0.60%
Moderate Growth
Moderate Decline
-1.29%
Rapid Decline
-2.58%
The increase in the CEI-N followed a decline in April and a slight drop in May, as seen in Figure 5. Overall,
results show modest growth in the Nebraska economy in the first half of 2015, with increases in January
through March largely reversed by the drop in April and May. The increase in June, however, suggests
that economic growth is beginning to improve in Nebraska.
Figure 5: Change in CEI-N
Last 6 Months
2.58%
1.29%
0.65%
0.60%
0.36%
0.46%
0.00%
-0.05%
-1.29%
-1.17%
-2.58%
Jan 15
Feb 15
Mar 15
Apr 15
May 15
Jun 15
As seen in Figure 6, two of the four components of the CEI-N rose during June while two others
declined. Among rising components, there was an increase in electricity sales in June, after adjusting for
weather and other seasonal factors. There also was an improvement in business conditions, according
to respondents to the June Survey of Nebraska Business, who reported an increase in employment at
their businesses. Among falling components, there was a slight decline in real private wages in June.
There also was a decline in agricultural commodity prices in Nebraska, due a sharp drop in beef prices. 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
June 2015
2.58%
1.29%
0.58%
0.46%
0.00%
-0.05%
-1.29%
-0.38%
Business
Conditions
Agricultural
Commodities
Private
Wages
Electricity
Sales
-2.58%
Figure 7 shows the forecast for the CEI-N over the next six months. The forecast calls for strong,
consistent economic growth through the end of the year. Results are in line with improvements in the
LEI-N in five of the last six months (see Figure 2) and suggest a strong Nebraska economy during the
second half of 2015.
Figure 7: 6-Month Forecast of
Coincident Economic Indicator - Nebraska
1.25%
116.00
0.32%
0.75%
0.39%
0.55%
0.72%
115.00
0.24%
0.25%
0.24%
114.00
-0.25%
113.00
-0.75%
112.00
-1.25%
111.00
Jun 15
Jul 15
Aug 15
Sep 15
Index Growth
Oct 15
Nov 15
Dec 15
Index Value
4
Weights and Component Shares
Table 1 shows the weights used to aggregate the individual components into the LEI-N and CEI-N. 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
13.6839
3.4479
1.2083
10.3807
1.4838
4.4446
Variable
SF Housing Permits
Airline Passengers
Exchange Rate
Initial UI Claims
Manufacturing Hours
Survey Business Expectations
Inverse
STD
0.0731
0.2900
0.8276
0.0963
0.6740
0.2250
Coincident Economic Indicator - Nebraska
Weight
(Inverse STD
Standardize)
0.0334
0.1327
0.3786
0.0441
0.3083
0.1029
Variable
Electricity Sales
Private Wages
Agricultural Commodities
Survey Business Conditions
Standard
Deviation
4.7763
1.6687
3.2085
3.8357
Inverse
STD
0.2094
0.5993
0.3117
0.2607
Weight
(Inverse STD
Standardize)
0.1516
0.4339
0.2257
0.1888
Tables 2 and 3 show the calculation for the change in CEI-N and LEI-N between May and June 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
0.11% 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
57.73
58.58
-0.85
0.03
-0.03
-0.02%
Airline Passengers
91.96
92.31
-0.35
0.13
-0.05
-0.04%
U.S. Dollar Exchange Rate
(Inverse)
90.78
91.52
-0.74
0.38
-0.28
-0.24%
Initial Unemployment
Insurance Claims (Inverse)
Component
110.54
102.85
7.69
0.04
0.34
0.29%
Manufacturing Hours
97.50
98.19
-0.68
0.31
-0.21
-0.18%
Survey Business
Expectations 1
55.43
5.43
0.10
0.56
0.48%
0.13
0.11%
0.46
0.40%
Trend Adjustment
Total (weighted average)
1
116.28
115.82
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
120.79
Private Wage
101.52
150.00
Agricultural Commodities
Survey Business Conditions
Total (weighted average)
1
1
Difference
Weight
116.52
4.27
0.15
0.65
0.58%
101.66
-0.14
0.43
-0.06
-0.05%
151.88
-1.88
0.23
-0.42
-0.38%
2.70
0.19
0.51
0.46%
0.67
0.60%
52.70
112.72
112.05
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
2015.4
80.00
CEI-N (May 2007=100)
LEI-N, 6 Month Forward (May 2007=100)
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