Nebraska Monthly Economic Indicators: March 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) was flat in February 2015, rising
by just 0.01% during the month. The LEI-N predicts economic growth in the state six months in
the future. The flat LEI-N, when combined with solid monthly increases in December 2014 and
January 2015, suggest that economic growth in Nebraska will be solid in mid-2015. Three of six
components of the leading economic indicator rose during February. Respondents to the Survey
of Nebraska Business were optimistic. Respondents predicted a strong increase in employment
over the next six months and an increase in sales. There also was a slight increase in building
permits and a slight decline in initial claims for unemployment insurance during February, which
suggests strength in the labor market. Among declining components, the most important factor
was the exchange rate of the U.S. dollar. For the seventh consecutive month, there was a sharp
increase in the value of the dollar, which is a significant negative for businesses which export.
There also was a decline in airline passenger counts and manufacturing hours during February.
Leading Economic Indicator – Nebraska
Figure 1 shows the change in the Leading Economic Indicator – Nebraska (LEI-N) in February 2015,
compared to the previous month. The LEI-N predicts economic growth six months into the future. The
LEI-N was essentially flat in February, rising by just 0.01%.
Figure 1: Change in LEI-N
February 2015
2.42%
1.21%
Rapid Growth
Moderate Growth
0.01%
0.00%
Moderate Decline
-1.21%
Rapid Decline
-2.42%
Figure 2 shows the change in the LEI-N over the last 6 months. The LEI-N declined sharply in both
September and November, 2014 but began to improve again in December. The LEI-N rose rapidly in
December and solidly in January, before rising by just 0.01% in February. Taken together, these results
suggest that economic growth will be solid in mid-2015.
1
Figure 2: Change in LEI - N
Last 6 Months
2.42%
1.28%
1.21%
0.62%
0.02%
0.01%
0.00%
-1.21%
-0.99%
-1.35%
-2.42%
Sep 14
Oct 14
Nov 14
Dec 14
Jan 15
Feb 15
Figure 3 shows the components of change in the Leading Economic Indicator – Nebraska during February
2015. The change in the overall LEI–N is the weighted average of changes in each component (see page
5). Two key components are the value of the U.S. Dollar and business expectations. As in many recent
months, business expectations were strong in February. Respondents to the February Survey of Nebraska
Business reported strong expectations for job growth over the next six months, and expectations for solid
sales growth. At the same time, the value of the U.S. dollar has been a negative for the Nebraska economy.
Sharp monthly increases in the value of the dollar over the last seven months have created a growing
challenge for Nebraska’s export businesses. Among other components, airline passenger counts and
manufacturing hours both declined in February. There also were slight increases in seasonally-adjusted
building permits for single family homes during the month. Finally, a modest drop in initial claims for
unemployment insurance suggests improvement in the Nebraska labor market. Note that the trend
adjustment component pictured in Figure 3 is discussed on page 5.
Figure 3: LEI-N Components of Change
February 2015
2.42%
0.55%
1.21%
0.05%
0.02%
0.12%
0.00%
-0.20%
-1.21%
-0.11%
-0.42%
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 declined in February, falling by 0.21%.
Figure 4: Change in CEI-N
February 2015
2.58%
1.29%
0.00%
Rapid Growth
Moderate Growth
Moderate Decline
-0.21%
-1.29%
Rapid Decline
-2.58%
The CEI-N has weakened during 2015, as seen in Figure 5. The CEI-N grew rapidly at the end of 2014,
particularly during October and December. However, growth moderated in January and the CEI-N
declined in February. These trends indicate that the Nebraska economy is shifting towards weaker growth
in the first half of 2015.
Figure 5: Change in CEI-N
Last 6 Months
2.16%
2.58%
1.29%
1.46%
0.61%
0.59%
0.41%
0.00%
-0.21%
-1.29%
-2.58%
Sep 14
Oct 14
Nov 14
Dec 14
Jan 15
Feb 15
As seen in Figure 6, three of four components of the CEI-N rose during February. Among rising
components, there was a modest increase in real private wages. Real private wages is a composite of
employment, hours worked per week and real hourly wages. There also was a slight improvement in the
value of agricultural commodities in Nebraska, as corn prices rebounded modestly. Business expectations
also were up slightly during February. Respondents to the February Survey of Nebraska Business reported
a modest increase in sales. The only declining component was electricity sales, which declined 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
February 2015
2.58%
1.29%
0.10%
0.06%
0.02%
0.00%
-1.29%
-0.39%
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 another modest
decline in the CEI-N during the next two months. Growth will improve, however, beginning in mid-2015.
Overall, the forecast calls for weak economic growth in Nebraska in early 2015 and faster growth during
the second half of the year. These expectations are consistent with recent values for the LEI-N (see Figure
2) since the LEI-N declined in the second half of 2014 but improved in recent months.
Figure 7: 6-Month Forecast of
Coincident Economic Indicator - Nebraska
1.25%
113.50
0.75%
0.30%
0.61%
113.00
0.15%
0.25%
0.18%
112.50
112.00
-0.25%
111.50
-0.06%
-0.75%
-0.15%
111.00
-1.25%
110.50
Feb 15
Mar 15
Apr 15
May 15
Index Growth
Jun 15
Jul 15
Aug 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
13.8011
3.4728
1.2114
10.4151
1.4710
4.4483
Inverse
STD
0.0725
0.2880
0.8255
0.0960
0.6798
0.2248
Coincident Economic Indicator - Nebraska
Weight
(Inverse STD
Standardize)
0.0331
0.1317
0.3775
0.0439
0.3109
0.1028
Variable
Electricity Sales
Private Wages
Agricultural Commodities
Survey Business Conditions
Standard
Deviation
4.8236
1.6903
3.2164
3.8378
Inverse
STD
0.2073
0.5916
0.3109
0.2606
Weight
(Inverse STD
Standardize)
0.1513
0.4317
0.2269
0.1901
Tables 2 and 3 show the calculation for the change in CEI-N and LEI-N between January and February 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
67.54
66.70
0.84
0.03
0.03
0.02%
Airline Passengers
91.48
93.16
-1.68
0.13
-0.22
-0.20%
U.S. Dollar Exchange Rate
(Inverse)
91.52
92.77
-1.26
0.38
-0.48
-0.42%
Initial Unemployment
Insurance Claims (Inverse)
107.35
106.18
1.17
0.04
0.05
0.05%
Manufacturing Hours
97.11
97.49
-0.38
0.31
-0.12
-0.11%
Survey Business
Expectations 1
56.04
6.04
0.10
0.62
0.55%
0.13
0.12%
0.02
0.01%
Trend Adjustment
Total (weighted average)
1
112.91
112.89
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
117.99
120.89
-2.90
0.15
-0.44
-0.39%
Private Wage
100.77
100.53
0.25
0.43
0.11
0.10%
Agricultural Commodities
154.84
154.53
0.31
0.23
0.07
0.06%
0.13
0.19
0.03
0.02%
-0.24
-0.21%
Survey Business Conditions 1
Total (weighted average)
1
50.13
111.93
112.17
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