Nebraska Monthly Economic Indicators: December 20, 2013
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) declined by 0.59% during
November 2013. The decrease in the LEI-N, which predicts economic growth in the state six
months in the future, follows three months of expansion. Taking these four months together,
the Nebraska economy is expected to expand at a moderate rate in the first half of 2014 but the
rate of growth will slow by mid-2014. During November, two components of the indicator
expanded and four declined. Among expanding components, there were small increases in both
airline passenger counts and manufacturing hours. Among declining components, building
permits fell on a seasonally-adjusted basis. There also was a decline business expectations. In
particular, respondents to the Survey of Nebraska Business predicted a decline in sales at their
business over the next six month. Initial unemployment claims also rose in November on a
seasonally-adjusted basis. Finally, there was an increase in the value of the U.S. dollar during
November, which creates a more difficult environment for the state’s exporting businesses.
Leading Economic Indicator – Nebraska
Figure 1 shows the change in the Leading Economic Indicator – Nebraska (LEI-N) in November 2013,
compared to the previous month. The LEI-N predicts economic growth six months into the future. The
LEI-N decreased by 0.59% in November.
Figure 1: Change in LEI-N
November 2013
2.48%
1.24%
0.00%
Rapid Growth
Moderate Growth
Moderate Decline
-0.59%
-1.24%
Rapid Decline
-2.48%
Figure 2 shows the growth in the LEI-N over the last 6 months. The indicator changed very little on net in
June and July but rose steadily in August and September. Results for August and September suggest
moderate growth in the LEI-N during the first quarter of 2014. Indicator values were mixed in October
and November. After an upward revision, there was a modest increase in the LEI-N during October 2013.
LEI-N values for October and November suggest slow economic growth in Nebraska during mid-2014.
1
Figure 2: Change in LEI - N
Last 6 Months
2.48%
1.47%
1.24%
0.76%
0.61%
0.22%
0.00%
-0.59%
-1.24%
-1.41%
-2.48%
Jun 13
Jul 13
Aug 13
Sep 13
Oct 13
Nov 13
Figure 3 shows the components of change in the Leading Economic Indicator – Nebraska during
November 2013. The change in the overall LEI–N is the weighted average of changes in each component
(see page 5). During November, two components of the indicator grew and four declined. Airline
passenger counts rose during November, suggesting improving confidence among the households that
participate in leisure travel and the firms that participate in business travel. There also was a slightly
increase in manufacturing hours. Among declining components, there was a decline in building permits
for single-family homes. There also was a decline in business expectations as measured by the Survey of
Nebraska Business. Respondents to the survey projected a decrease in sales at their business over the
next six months. Initial unemployment claims also rose in November, suggesting a weaker the job
market. Finally, the value of the U.S. dollar increased during November, 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
November 2013
2.48%
1.24%
0.10%
0.02%
0.12%
-0.17%
-0.32%
-0.29%
Initial UI Claims
-1.24%
Dollar Exchange
Rate
0.00%
-0.04%
Trend Adjustment
Business
Expectations
Manufacturing
Hours
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 slightly, by 0.13%, between October and November of 2013, as seen in
Figure 4.
Figure 4: Change in CEI-N
November 2013
2.66%
1.33%
0.00%
Rapid Growth
Moderate Growth
Moderate Decline
-0.13%
-1.33%
Rapid Decline
-2.66%
The slight decline in the CEI-N during November reflects stabilization in the economy. Growth has been
mixed over the last three months. The CEI-N was up sharply in September and down sharply in October.
This followed a decline during the June through August period. It will be critical to see if the CEI-N
remains stable during December and the first months of 2014.
Figure 5: Change in CEI-N
Last 6 Months
2.66%
1.50%
1.33%
0.36%
0.00%
-0.13%
-0.42%
-1.33%
-1.43%
-2.10%
-2.66%
Jun 13
July 13
Aug 13
Sep 13
Oct 13
Nov 13
As seen in Figure 6, two of the four components of the CEI-N increased during November. Real weakly
private wages grew during the month, suggesting growth in employment opportunities and real wages.
Electricity sales also rose during November, 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 agricultural
commodity prices in November, due to a sharp decline in crop prices. The decline in corn prices was the
primary reason for the slight decline in the CEI-N during November. 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
November 2013
2.66%
1.33%
0.36%
0.52%
0.00%
-0.31%
-1.33%
-0.70%
Business
Conditions
Agricultural
Commodities
Private
Wages
Electricity
Sales
-2.66%
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, primarily due to a solid improvement in February
2014. Growth will be anemic during the second quarter of 2014, consistent with recent weakness in the
LEI-N during October and November of 2013 (see Figure 2).
Figure 7: 6-Month Forecast of
Coincident Economic Indicator - Nebraska
1.00%
108.00
0.69%
0.50%
107.50
0.29%
0.10%
0.03%
0.09%
107.00
0.00%
106.50
-0.16%
-0.50%
106.00
-1.00%
105.50
Nov 13
Dec 13
Jan 14
Feb 14
Index Gr owth
Mar 14
Apr 14
May 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
Standard
Deviation
13.9093
3.5588
1.2158
10.0984
1.4682
4.1282
Variable
SF Housing Permits
Airline Passengers
Exchange Rate
Initial UI Claims
Manufacturing Hours
Survey Business Expectations
Inverse
STD
0.0719
0.2810
0.8225
0.0990
0.6811
0.2422
Coincident Economic Indicator - Nebraska
Weight
(Inverse STD
Standardize)
0.0327
0.1279
0.3743
0.0451
0.3099
0.1102
Variable
Electricity Sales
Private Wages
Agricultural Commodities
Survey Business Conditions
Standard
Deviation
4.9985
1.7604
3.1512
2.7531
Inverse
STD
0.2001
0.5681
0.3173
0.3632
Weight
(Inverse STD
Standardize)
0.1381
0.3921
0.2191
0.2507
Tables 2 and 3 show the calculation for the change in CEI-N and LEI-N between October and November
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 under-predicts
CEI-N by 0.12% per month. The U.S. Leading Economic Indicator also has a trend adjacent factor.
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
71.02
76.49
-5.47
0.03
-0.18
-0.17%
Airline Passengers
89.93
89.12
0.80
0.13
0.10
0.10%
U.S. Dollar Exchange Rate
(Inverse)
102.68
103.61
-0.93
0.37
-0.35
-0.32%
Initial Unemployment
Insurance Claims (Inverse)
77.81
84.82
-7.01
0.05
-0.32
-0.29%
Manufacturing Hours
94.23
94.18
0.05
0.31
0.02
0.02%
Survey Business
Expectations 1
49.62
-0.38
0.11
-0.04
-0.04%
Component
Trend Adjustment
Total (weighted average)
1
107.16
107.80
0.13
0.12%
-0.64
-0.59%
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
118.79
116.03
2.76
0.14
0.38
0.35%
96.28
94.86
1.42
0.39
0.56
0.51%
148.27
151.65
-3.39
0.22
-0.74
-0.69%
-1.32
0.25
-0.33
-0.31%
-0.14
-0.13%
Private Wage
Agricultural Commodities
Survey Business Conditions
Total (weighted average)
1
1
48.68
106.40
106.53
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