Nebraska Monthly Economic Indicators: January 17, 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 0.78% during
December 2013. The increase in the LEI-N, which predicts economic growth in the state six
months in the future, follows a decline in November. Taken together, recent results for the LEI-N
suggest that the Nebraska economy will grow only modestly in the second quarter of 2014, but
that the rate of growth may begin to improve in June, as summer begins. During December, four
components of the leading economic indicator expanded and two declined. Among expanding
components, there was a solid increse in single-family building permits, consistent with the
continued recovery of the housing industry in Nebraska. There also were modest increases in
both airline passenger counts and manufacturing hours. Further, there was a modest
improvement in business expectations. Respondents to the Survey of Nebraska Business
predicted an increase in employment at their business over the next six month. Among declining
components, initial unemployment claims rose in December on a seasonally-adjusted basis.
There also was an increase in the value of the U.S. dollar, a negative for the state’s exporters.
Leading Economic Indicator – Nebraska
Figure 1 shows the change in the Leading Economic Indicator – Nebraska (LEI-N) in December 2013,
compared to the previous month. The LEI-N predicts economic growth six months into the future. The
LEI-N increased by 0.78% in December.
Figure 1: Change in LEI-N
December 2013
2.48%
1.24%
0.00%
Rapid Growth
0.78%
Moderate Growth
Moderate Decline
-1.24%
Rapid Decline
-2.48%
Figure 2 shows the growth in the LEI-N over the last 6 months. Results are mixed. A drop in the indicator
in one month is often reversed in the month or months that follow. Taken together, results suggest
weak growth in the Nebraska economy during second quarter of 2014. However, given the solid
increase in the LEI-N during December, economic growth should improve in June as the summer begins.
1
Figure 2: Change in LEI - N
Last 6 Months
2.46%
0.86%
1.23%
0.78%
0.61%
0.21%
0.00%
-1.23%
-0.70%
-1.47%
-2.46%
Jul 13
Aug 13
Sep 13
Oct 13
Nov 13
Dec 13
Figure 3 shows the components of change in the Leading Economic Indicator – Nebraska during
December 2013. The change in the overall LEI–N is the weighted average of changes in each component
(see page 5). During December, four components of the indicator grew and two declined. Single-family
building permit counts rose solidly in December on a seasonally-adjusted basis, consistent with the
ongoing recovery of housing construction in Nebraska. Airline passenger counts and manufacturing
hours also rose modestly during December. Further, business expectations were modestly positive in
Nebraska in December, according to results of the Survey of Nebraska Business. Respondents to the
survey projected an increase employment at their business over the next six months. Among declining
components, initial unemployment claims also rose modestly in December. The value of the U.S. dollar
also increased during December, 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
December 2013
0.22%
0.02%
0.06%
0.12%
Trend Adjustment
0.49%
Business
Expectations
1.24%
Manufacturing
Hours
2.48%
-0.08%
-0.06%
Initial UI Claims
-1.24%
Dollar Exchange
Rate
0.00%
Airline Passengers
Building Permits
-2.48%
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 declined by 0.37% between November and December of 2013, as seen in Figure 4.
Figure 4: Change in CEI-N
December 2013
2.64%
1.32%
0.00%
Rapid Growth
Moderate Growth
Moderate Decline
-0.37%
-1.32%
Rapid Decline
-2.64%
The modest decline in the CEI-N during December and the previous month, as seen in Figure 5, reflects
stabilization in the Nebraska economy. The CEI-N was down overall in the August through October
period. There was a sharp drop in agricultural commodity prices during this period. The decline in
agricultural prices continues to impact the state economy but the situation has stabilized in the last two
months. It will be important to monitor if the CEI-N remains stable during the first few months of 2014.
Figure 5: Change in CEI-N
Last 6 Months
2.64%
1.48%
1.32%
0.00%
-0.19%
-0.39%
-0.37%
-1.32%
-1.56%
-2.19%
-2.64%
Jul 13
Aug 13
Sep 13
Oct 13
Nov 13
Dec 13
As seen in Figure 6, two of the four components of the CEI-N increased during December. Real weekly
private wages grew during the month, suggesting growth in employment opportunities, hours-worked
per week and real wages. Electricity sales also rose during December, after accounting for weather and
seasonal trends. Among declining components, respondents to the Survey of Nebraska Business
reported a modest decline in sales activity and employment 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
December 2013
2.64%
1.32%
0.34%
0.54%
0.00%
-1.32%
-0.65%
-0.60%
Business
Conditions
Agricultural
Commodities
Private
Wages
Electricity
Sales
-2.64%
Figure 7 shows the forecast for the CEI-N over the next six months. The forecast suggests moderate
growth in the CEI-N during the first quarter of 2014, though growth during the quarter will be
concentrated in the month of February. Growth will be weak in the second quarter of 2014, though
growth will improve in June, consistent with the increase in LEI-N during December (see Figure 1). The
forecast in Figure 7 suggests that the economic growth in Nebraska may accelerate in the summer of
2014, beginning in June.
Figure 7: 6-Month Forecast of
Coincident Economic Indicator - Nebraska
1.00%
107.50
0.78%
107.00
0.50%
0.09%
0.02%
0.21%
0.36%
106.50
0.03%
0.00%
106.00
105.50
-0.50%
105.00
-1.00%
104.50
Dec 13
Jan 14
Feb 14
Mar 14
Index Gr owth
Apr 14
May 14
Jun 14
Index V alue
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
13.9480
3.5616
1.2123
10.0791
1.4560
4.0765
Inverse
STD
0.0717
0.2808
0.8249
0.0992
0.6868
0.2453
Coincident Economic Indicator - Nebraska
Weight
(Inverse STD
Standardize)
0.0325
0.1271
0.3735
0.0449
0.3110
0.1111
Variable
Electricity Sales
Private Wages
Agricultural Commodities
Survey Business Conditions
Standard
Deviation
5.0062
1.7347
3.1268
2.7387
Inverse
STD
0.1998
0.5765
0.3198
0.3651
Weight
(Inverse STD
Standardize)
0.1367
0.3945
0.2189
0.2499
Tables 2 and 3 show the calculation for the change in CEI-N and LEI-N between November and
December of 2013. 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
89.14
72.95
16.20
0.03
0.53
0.49%
Airline Passengers
92.00
90.11
1.89
0.13
0.24
0.22%
U.S. Dollar Exchange Rate
(Inverse)
102.47
102.68
-0.22
0.37
-0.08
-0.08%
Initial Unemployment
Insurance Claims (Inverse)
75.74
77.13
-1.40
0.04
-0.06
-0.06%
Manufacturing Hours
93.72
93.64
0.08
0.31
0.02
0.02%
Survey Business
Expectations 1
50.56
0.56
0.11
0.06
0.06%
0.13
0.12%
0.84
0.78%
Component
Trend Adjustment
Total (weighted average)
1
107.89
107.05
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
122.68
120.03
2.65
0.14
0.36
0.34%
96.54
95.09
1.45
0.39
0.57
0.54%
145.13
148.27
-3.14
0.22
-0.69
-0.65%
-2.55
0.25
-0.64
-0.60%
-0.39
-0.37%
Private Wage
Agricultural Commodities
Survey Business Conditions 1
Total (weighted average)
1
47.45
105.64
106.03
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
80.00
CEI-N (May 2007=100)
LEI- N, 6 Month Forward (M ay 2007=100)
6