Nebraska Monthly Economic Indicators: May 16, 2014
Prepared by the UNL College of Business Administration, Department of Economics
Authors: Dr. Eric Thompson, Dr. William Walstad
Graduate Research Assistants: Shannon McClure,
Mihdi Vahedi
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 1.89% during April 2014.
The rise in the LEI-N, which predicts economic growth in the state six months in the future,
suggests solid growth in the Nebraska economy in the second half of 2014. Among the growing
components of the leading economic indicator, there was a sharp drop in initial unemployent
claims, suggesting solid improvement in labor market conditions. There also was solid
improvement in business expectations. Specifically, respondents to the Survey of Nebraska
Business predicted an increase in sales and employment at their business over the next six
month. At the same time, building permits for single-family homes rose on a seasonally adjusted
basis and there was a decline in the value of the U.S. Dollar. This decline in the dollar is a
positive for Nebraska’s exporters. Among the remaining components of the leading indicator,
there was a modest decline in both manufacturing hours and airline passenger counts.
Leading Economic Indicator – Nebraska
Figure 1 shows the change in the Leading Economic Indicator – Nebraska (LEI-N) in April 2014, compared
to the previous month. The LEI-N predicts economic growth six months into the future. The LEI-N rose
rapidly in April, by 1.89%.
Figure 1: Change in LEI-N
April 2014
2.50%
1.25%
0.00%
Rapid Growth
1.89%
Moderate Growth
Moderate Decline
-1.25%
Rapid Decline
-2.50%
Figure 2 shows the change in the LEI-N over the last 6 months. While there was volatility in the leading
indicator during late 2013 and early 2014, the outlook was positive on balance. Further, the leading
indicator has risen in each of the last three months, including the rapid increase this month. Note that
the positive LEI-N value for March 2013 reflects a modest upward revision from the slightly negative
value reported last month.
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Figure 2: Change in LEI - N
Last 6 Months
2.39%
2.50%
1.89%
0.98%
1.25%
0.32%
0.00%
-1.25%
-0.93%
-1.80%
-2.50%
Nov 13
Dec 13
Jan 14
Feb 14
Mar 14
Apr 14
Figure 3 shows the components of change in the Leading Economic Indicator – Nebraska during April
2014. The change in the overall LEI–N is the weighted average of changes in each component (see page
5). During April, four components of the LEI-N rose and two declined. There was a sharp decline in initial
unemployment claims, which is a solid positive signal for the labor market. At the same time, business
expectations improved in April as respondents to the Survey of Nebraska Business predicted an increase
in both sales and employment over the next six months. There also was an increase in single-family
building permits in April, even after seasonal adjustment. A declining value for the U.S. dollar also
improved the competitive position of Nebraska exporters. Only two components of the LEI-N declined in
April. There was a slight decline in manufacturing hours and seasonally-adjusted airline passenger
counts. Note that the trend adjustment component pictured in Figure 3 is discussed on page 5.
Figure 3: LEI-N Components of Change
April 2014
2.50%
1.18%
1.25%
0.41%
0.14%
0.16%
0.12%
0.00%
-0.04%
-0.08%
-1.25%
Trend Adjustment
Business
Expectations
Manufacturing
Hours
Initial UI Claims
Dollar Exchange
Rate
Airline Passengers
Building Permits
-2.50%
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 essentially flat last month, rising by just 0.01%.
Figure 4: Change in CEI-N
April 2014
2.62%
1.31%
Rapid Growth
Moderate Growth
0.01%
0.00%
Moderate Decline
-1.31%
Rapid Decline
-2.62%
The very slight increase in the CEI-N during April is a further sign of stabilization in the Nebraska
economy. As seen in Figure 5, the CEI-N dropped consistently from November 2013 through January
2014, as the Nebraska economy continued to adjust to the sharp drop in the crop prices during the
summer and fall of 2013. The Nebraska economy then stabilized over the last three months. We note
that the CEI-N is expected to expand over most of the next 6 months (see Figure 7).
Figure 5: Change in CEI-N
Last 6 Months
2.62%
1.31%
0.10%
0.00%
0.01%
Mar 14
Apr 14
0.00%
-1.31%
-0.81%
-0.92%
-1.00%
-2.62%
Nov 13
Dec 13
Jan 14
Feb 14
As seen in Figure 6, three components of the CEI-N rose during April while one declined. There was solid
improvement in real private wages, electricity sales and commodity prices. Real weekly private wages
grew during the month, suggesting growth in employment opportunities, hours-worked per week and
real wages. Electricity sales rose modestly in April after accounting for weather and other seasonal
adjustments. Agricultural commodity prices also rose, due to a solid increase in corn prices and
sustained high beef prices. Only one component of the CEI-N declined during April. Specifically,
respondents to the Survey of Nebraska Business reported a decline in sales and employment in recent
months. A detailed discussion of the components of the CEI-N, as well as the LEI-N, can be found at
www.cba.unl.edu in Technical Report: Coincident and Leading Economic Indicators- Nebraska.
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Figure 6: CEI-N Components of Change
April 2014
2.62%
1.31%
0.26%
0.24%
0.32%
0.00%
-1.31%
-0.80%
Business
Conditions
Agricultural
Commodities
Private
Wages
Electricity
Sales
-2.62%
Figure 7 shows the forecast for the CEI-N over the next six months. The forecast suggests moderate
growth in the CEI-N over the next few months and solid growth in the Nebraska economy beginning in
August. This expectation is consistent with recent values for the LEI-N (see Figure 2).
Figure 7: 6-Month Forecast of
Coincident Economic Indicator - Nebraska
1.25%
109.00
0.90%
0.67%
0.57%
0.75%
0.36%
0.50%
108.00
0.25%
107.00
-0.25%
106.00
-0.29%
-0.75%
105.00
-1.25%
104.00
Apr 14
May 14
Jun 14
Jul 14
Index Growth
Aug 14
Sep 14
Oct 14
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
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
Variable
SF Housing Permits
Airline Passengers
Exchange Rate
Initial UI Claims
Manufacturing Hours
Survey Business Expectations
Standard
Deviation
13.8896
3.5483
1.2010
10.3076
1.4823
4.5622
Inverse
STD
0.0720
0.2818
0.8326
0.0970
0.6746
0.2192
Coincident Economic Indicator - Nebraska
Weight
(Inverse STD
Standardize)
0.0331
0.1294
0.3824
0.0446
0.3098
0.1007
Variable
Electricity Sales
Private Wages
Agricultural Commodities
Survey Business Conditions
Standard
Deviation
4.9065
1.7049
3.1151
3.8509
Inverse
STD
0.2038
0.5865
0.3210
0.2597
Weight
(Inverse STD
Standardize)
0.1487
0.4278
0.2341
0.1894
Tables 2 and 3 show the calculation for the change in CEI-N and LEI-N between March and April of 2014.
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)
Component
Contribution
Percentage
Contribution
(Relative to
Previous LEI-N)
Current
Previous
Difference
Weight
SF Building Permits
66.10
60.97
5.13
0.03
0.17
0.16%
Airline Passengers
93.29
93.65
-0.36
0.13
-0.05
-0.04%
U.S. Dollar Exchange Rate
(Inverse)
101.77
101.37
0.41
0.38
0.16
0.14%
Initial Unemployment
Insurance Claims (Inverse)
101.23
72.56
28.67
0.04
1.28
1.18%
Manufacturing Hours
95.09
95.37
-0.28
0.31
-0.09
-0.08%
Survey Business
Expectations 1
54.40
4.40
0.10
0.44
0.41%
0.13
0.12%
2.04
1.89%
Trend Adjustment
Total (weighted average)
1
110.30
108.26
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
119.36
117.55
1.82
0.15
0.27
0.26%
97.38
96.80
0.58
0.43
0.25
0.24%
144.83
143.39
1.44
0.23
0.34
0.32%
-4.45
0.19
-0.84
-0.80%
0.01
0.01%
Private Wage
Agricultural Commodities
Survey Business Conditions 1
Total (weighted average)
1
45.55
105.65
105.64
Survey results are a diffusion Index, which is always compared to 50
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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
2001.1
2002.1
2002.4
2002.7
2002.10
2003.1
2003.4
2003.7
2003.1
2004.1
2004.4
2004.7
2004.10
2005.1
2005.4
2005.7
2005.1
2006.1
2006.4
2006.7
2006.10
2007.1
2007.4
2007.7
2007.1
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
80.00
CEI-N (May 200 7=100)
LEI-N, 6 M onth Forward (May 200 7=100)
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