Nebraska Monthly Economic Indicators: February 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) decreased by 0.95% during
January 2014. The decrease in the LEI-N, which predicts economic growth in the state six months
in the future, follows a strong increase in December 2013. Taken together, LEI-N results for the
last two months suggest continued improvement in the Nebraska economy, specifically
moderate growth in mid-2014. Five of six components of the leading economic indicator
declined during January. There was a decline in building permits and airline passengers. Initial
unemployment claims increased slightly in January, a negative sign for the labor market. There
was a modest decline in business expectations. Respondents to the Survey of Nebraska Business
predicted an decrease in sales at their business over the next six month. Manufacturing hours,
however, did increase in January.
Leading Economic Indicator – Nebraska
Figure 1 shows the change in the Leading Economic Indicator – Nebraska (LEI-N) in January 2014,
compared to the previous month. The LEI-N predicts economic growth six months into the future. The
LEI-N decreased by 0.95% in January.
Figure 1: Change in LEI-N
January 2014
2.50%
1.25%
0.00%
Rapid Growth
Moderate Growth
Moderate Decline
-1.25%
Rapid Decline
-0.95%
-2.50%
Figure 2 shows the growth in the LEI-N over the last 6 months. Overall, the LEI-N rose over the last 6
months. LEI-N. Growth was uneven, however, from month to month. After rising in the first three
months, the LEI-N was inconsistent. The LEI-N rose sharply in December 2013 after manufacturing hours
were revised up sharply during that month. The LEI-N fell in both November 2013 and January 2014.
Taken together, there was a modest increase in the LEI-N over the last three months.
1
Figure 2: Change in LEI - N
Last 6 Months
2.45%
2.50%
1.25%
0.77%
0.65%
0.14%
0.00%
-1.25%
-0.95%
-0.97%
-2.50%
Aug 13
Sep 13
Oct 13
Nov 13
Dec 13
Jan14
Figure 3 shows the components of change in the Leading Economic Indicator – Nebraska during January
2014. The change in the overall LEI–N is the weighted average of changes in each component (see page
5). During January, five components of the indicator declined and one grew. Manufacturing hours was
the growing component. Airline passenger counts and single-family building permits, however, declined
on a seasonally-adjusted basis. The value of the U.S. dollar increased during January, which is negative
for export activity. Initial unemployment claims also rose slightly during the month on a seasonallyadjusted basis, which is a small negative for the labor market. Finally, business expectations were down
modestly in January. Respondents to the Survey of Nebraska Business predicted a decline in sales over
the next six months, although the outlook for employment was steady. Note that the trend adjustment
component pictured in Figure 3 is discussed on page 5.
Figure 3: LEI-N Components of Change
January 2014
2.50%
1.25%
0.06%
0.12%
-0.28%
-0.45%
-0.27%
Dollar Exchange
Rate
-1.25%
Airline Passengers
0.00%
-0.02%
-0.11%
Trend Adjustment
Business
Expectations
Manufacturing
Hours
Initial UI Claims
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 0.46% between December of 2013 and January of 2004, as seen in Figure 4.
Figure 4: Change in CEI-N
January 2014
2.62%
1.31%
0.00%
Rapid Growth
Moderate Growth
0.46%
Moderate Decline
-1.31%
Rapid Decline
-2.62%
The modest increase in the CEI-N during January is another sign of stabilization in the Nebraska
economy. As seen in Figure 5, the CEI-N dropped during the August to October 2013 period, largely in
reaction to a sharp drop in the price of agricultural crop prices. The CEI-N, however, has stabilized in
recent months. The indicator was little changed in November of 2013, dropped in December of 2013,
and rebounded by a similar amount in January 2014. As seen later in Figure 7, the CEI-N is expected to
expand overall during the next 6 months.
Figure 5: Change in CEI-N
Last 6 Months
2.62%
1.32%
1.31%
0.46%
0.00%
-0.09%
-0.68%
-1.31%
-2.62%
-1.52%
-2.11%
Aug 13
Sep 13
Oct 13
Nov 13
Dec 13
Jan 14
As seen in Figure 6, two of the four components of the CEI-N increased during January. Real weekly
private wages grew during the month, suggesting growth in employment opportunities, hours-worked
per week and real wages. Electricity sales also rose sharply in January, after accounting for weather and
seasonal trends. Among declining components, respondents to the Survey of Nebraska Business
reported a modest decline in sales activity in recent months. There also was continued decline in the
agricultural commodity price component. 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.
3
Figure 6: CEI-N Components of Change
January 2014
2.62%
1.31%
1.13%
0.26%
0.00%
-0.38%
-1.31%
-0.56%
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 in the first half of 2014, consistent with the overall increase in the LEI-N over the last
six months (see Figure 2). There will be a modest decline in the CEI-N in July 2014, but growth is still
expected to be solid in the second half of 2014. To confirm that expectation, it will be important to see if
the LEI-N expands in the coming months.
Figure 7: 6-Month Forecast of
Coincident Economic Indicator - Nebraska
1.02%
1.25%
108.00
0.75%
0.39%
0.43%
0.41%
107.00
0.25%
106.00
-0.25%
-0.12%
-0.39%
-0.75%
105.00
-1.25%
104.00
Jan 14
Feb 14
Mar 14
Apr 14
Index Growth
May 14
Jun 14
Jul 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
13.9482
3.5733
1.2105
10.0681
1.4891
4.0371
Inverse
STD
0.0717
0.2799
0.8261
0.0993
0.6715
0.2477
Coincident Economic Indicator - Nebraska
Weight
(Inverse STD
Standardize)
0.0326
0.1274
0.3762
0.0452
0.3058
0.1128
Variable
Electricity Sales
Private Wages
Agricultural Commodities
Survey Business Conditions
Standard
Deviation
5.0058
1.7196
3.1624
2.7158
Inverse
STD
0.1998
0.5815
0.3162
0.3682
Weight
(Inverse STD
Standardize)
0.1363
0.3967
0.2157
0.2512
Tables 2 and 3 show the calculation for the change in CEI-N and LEI-N between December of 2013 and
January 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 underpredicts 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
68.00
77.35
-9.35
0.03
-0.31
-0.28%
Airline Passengers
92.34
96.20
-3.85
0.13
-0.49
-0.45%
U.S. Dollar Exchange Rate
(Inverse)
101.68
102.47
-0.79
0.38
-0.30
-0.27%
Initial Unemployment
Insurance Claims (Inverse)
74.79
75.15
-0.37
0.05
-0.02
-0.02%
Manufacturing Hours
98.17
97.97
0.20
0.31
0.06
0.06%
Survey Business
Expectations 1
48.91
-1.09
0.11
-0.12
-0.11%
Component
Trend Adjustment
Total (weighted average)
1
108.33
109.37
0.13
0.12%
-1.04
-0.95%
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
132.52
123.78
8.74
0.14
1.19
1.13%
96.33
95.64
0.69
0.40
0.27
0.26%
143.53
145.39
-1.86
0.22
-0.40
-0.38%
-2.33
0.25
-0.58
-0.56%
0.48
0.46%
Private Wage
Agricultural Commodities
Survey Business Conditions 1
Total (weighted average)
1
47.67
105.79
105.31
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
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
80.00
CEI- N (May 2007=100)
LEI-N, 6 Month Forward (May 2007=100)
6