Nebraska Monthly Economic Indicators: March 21, 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) increased by 0.99% during
February 2014. The increase in the LEI-N, which predicts economic growth in the state six
months in the future, suggests moderate growth in the Nebraska economy during the summer
of 2014. Four of six components of the leading economic indicator grew during February.
Manufacturing hours and airline passenger counts both rose modestly. Initial unemployment
claims dropped significantly in February, a positive sign for the labor market. There was also a
solid improvement in business expectations. Respondents to the Survey of Nebraska Business
predicted an increase in sales and employment at their business over the next six month.
Among declining components, there was a slight drop in single-family home building permits in
February and a modest increase in the value of the dollar, which is a negative for exports.
Leading Economic Indicator – Nebraska
Figure 1 shows the change in the Leading Economic Indicator – Nebraska (LEI-N) in February 2014,
compared to the previous month. The LEI-N predicts economic growth six months into the future. The
LEI-N increased by 0.99% in February.
Figure 1: Change in LEI-N
February 2014
2.50%
1.25%
0.00%
Rapid Growth
0.99%
Moderate Growth
Moderate Decline
-1.25%
Rapid Decline
-2.50%
Figure 2 shows the growth in the LEI-N over the last 6 months. While there has been volatility in the
leading indicator in recent months, the outlook is positive on balance. The LEI-N rose in September and
October, 2013. Further, increases in the LEI-N since November have been larger than declines, also
suggesting improvement. The overall picture is for growth in the Nebraska economy over the next 6
months, with growth improving to a moderate pace by summer.
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Figure 2: Change in LEI - N
Last 6 Months
2.34%
2.50%
1.25%
0.99%
0.51%
0.12%
0.00%
-1.25%
-0.95%
-1.79%
-2.50%
Sep 13
Oct 13
Nov 13
Dec 13
Jan 14
Feb 14
Figure 3 shows the components of change in the Leading Economic Indicator – Nebraska during
February 2014. The change in the overall LEI–N is the weighted average of changes in each component
(see page 5). During February, four components of the indicator rose and two declined. Manufacturing
hours and airline passenger counts both rose. This suggests strength in the industrial sector and
confidence among consumers and business travelers. Initial unemployment claims also fell significantly
during the month on a seasonally-adjusted basis, which is a positive sign for the Nebraska labor market.
Business expectations also improved in February as respondents to the Survey of Nebraska Business
predicted an increase in both sales and employment over the next six months. Among other
components, single-family building permits declined modestly on a seasonally-adjusted basis. The value
of the U.S. dollar increased slightly during February, which is negative for export activity. Note that the
trend adjustment component pictured in Figure 3 is discussed on page 5.
Figure 3: LEI-N Components of Change
February 2014
0.54%
0.07%
0.11%
0.36%
Business
Expectations
1.25%
Manufacturing
Hours
2.50%
0.12%
0.00%
-0.13%
-0.08%
-1.25%
Trend Adjustment
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. The CEI-N rose by 0.16% between January and February of 2004, as seen in Figure 4.
Figure 4: Change in CEI-N
February 2014
2.62%
1.31%
Rapid Growth
Moderate Growth
0.16%
0.00%
Moderate Decline
-1.31%
Rapid Decline
-2.62%
The small increase in the CEI-N during February is a sign of stabilization. As seen in Figure 5, the CEI-N
dropped at the end of 2013, as the Nebraska economy continued to adjust to the sharp drop in the crop
prices during the summer and fall of 2013. The declines in the CEI-N were moderate, but such steady
declines are a sign of an anemic economy. The CEI-N for January was originally thought to have risen,
but turned negative due to a downward revision in the average weekly hours of Nebraska workers. The
improvement in the CEI-N in February suggests the economy is stabilizing. We note that the CEI-N is also
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%
1.22%
0.16%
0.00%
-0.37%
-1.31%
-0.61%
-0.77%
-1.58%
-2.62%
Sep 13
Oct 13
Nov 13
Dec 13
Jan 14
Feb 14
As seen in Figure 6, growth in the CEI-N during February was due to a rebound in private wages. Real
weekly private wages grew during the month, suggesting growth in employment opportunities, hoursworked per week and real wages. The other three components of the CEI-N declined. Electricity sales fell
slightly during February. Respondents to the Survey of Nebraska Business reported a modest decline in
sales activity in recent months, though employment held steady. Agricultural commodity prices also
were down slightly. 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
February 2014
2.62%
0.64%
1.31%
0.00%
-1.31%
-0.09%
-0.16%
-0.24%
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 through August 2014, a result which is consistent with the overall improvement in
the LEI-N over the last six months (see Figure 2). This expectation is consistent with an acceleration of
economic growth in Nebraska throughout the year. It will be critical to see whether the LEI-N continues
to expand in the coming months.
Figure 7: 6-Month Forecast of
Coincident Economic Indicator - Nebraska
1.25%
106.00
0.61%
0.75%
0.18%
0.50%
0.29%
0.25%
105.50
105.00
-0.25%
104.50
-0.10%
-0.36%
-0.75%
104.00
-1.25%
103.50
Feb 14
Mar 14
Apr 14
May 14
Index Growth
Jun 14
Jul 14
Aug 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
Standard
Deviation
13.9983
3.5671
1.2079
10.0730
1.4866
4.0333
Variable
SF Housing Permits
Airline Passengers
Exchange Rate
Initial UI Claims
Manufacturing Hours
Survey Business Expectations
Inverse
STD
0.0714
0.2803
0.8279
0.0993
0.6727
0.2479
Coincident Economic Indicator - Nebraska
Weight
(Inverse STD
Standardize)
0.0325
0.1275
0.3764
0.0451
0.3058
0.1127
Variable
Electricity Sales
Private Wages
Agricultural Commodities
Survey Business Conditions
Standard
Deviation
4.9750
1.7278
3.1454
2.6928
Inverse
STD
0.2010
0.5788
0.3179
0.3714
Weight
(Inverse STD
Standardize)
0.1368
0.3940
0.2164
0.2528
Tables 2 and 3 show the calculation for the change in CEI-N and LEI-N between January and February 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)
Current
Previous
Difference
Weight
Contribution
Percentage
Contribution
(Relative to
Previous LEI-N)
SF Building Permits
55.62
59.86
-4.24
0.03
-0.14
-0.13%
Airline Passengers
93.23
92.61
0.62
0.13
0.08
0.07%
U.S. Dollar Exchange Rate
(Inverse)
101.27
101.51
-0.24
0.38
-0.09
-0.08%
Initial Unemployment
Insurance Claims (Inverse)
88.16
75.39
12.77
0.05
0.58
0.54%
Manufacturing Hours
94.84
94.45
0.39
0.31
0.12
0.11%
Survey Business
Expectations 1
53.40
3.40
0.11
0.38
0.36%
0.13
0.12%
1.06
0.99%
Component
Trend Adjustment
Total (weighted average)
1
107.98
106.92
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
125.94
126.61
-0.66
0.14
-0.09
-0.09%
96.53
94.83
1.70
0.39
0.67
0.64%
142.88
143.65
-0.77
0.22
-0.17
-0.16%
-0.97
0.25
-0.25
-0.24%
0.17
0.16%
Private Wage
Agricultural Commodities
Survey Business Conditions
Total (weighted average)
1
1
49.03
104.66
104.50
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 0.95.
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 0.92.
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
83.91
81.85
82.26
81.63
82.39
82.23
83.84
82.70
84.47
84.56
87.30
89.43
90.63
90.70
89.00
91.70
92.04
93.30
93.36
93.54
96.07
94.07
93.62
95.50
96.71
99.42
101.09
101.32
101.93
103.57
103.74
97.41
93.64
92.05
94.68
95.34
96.43
96.57
96.10
99.37
99.22
101.87
102.75
100.47
101.02
102.98
102.36
104.69
103.92
106.03
105.90
107.40
106.92
80.00
CEI- N (May 2007=100)
LEI-N, 6 Month Forward (May 2007=100)
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