Nebraska Monthly Economic Indicators: August 16, 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) fell by 1.05% during July 2013.
The decline in the LEI-N, which predicts economic growth in the state six months in the future,
reverses a strong increase in June, and signals that Nebraska will be unable to sustain rapid
economic growth. Taken together, results for the past two months indicate that economic
growth will be modest at the end of 2013 and the beginning of 2014. Components of the leading
indicator showed few signs of growth during July. In particular, five of the six components of the
leading indicator fell during the month. No change was identified in single-family building
permits. Both airline passenger counts and manufacturing hours declined slightly during July.
Further, initial unemployment insurance claims rose during the month, a negative signal for the
labor market. Business expectations also fell during July. Respondents to the Survey of Nebraska
Business predicted a slight decline in sales and employment at their business over the next six
month. Finally, the value of the U.S. dollar rose again during July, continuing to pressure
businesses that export, a significant concern in Nebraska with its large export industry.
Leading Economic Indicator – Nebraska
Figure 1 shows the change in the Leading Economic Indicator – Nebraska (LEI-N) in July 2013, compared
to the previous month. The LEI-N, which predicts economic growth six months into the future,
decreased by 1.05% in July.
Figure 1: Change in LEI-N
July 2013
2.48%
1.24%
0.00%
Rapid Growth
Moderate Growth
Moderate Decline
-1.24%
Rapid Decline
-1.05%
-2.48%
1
Figure 2 shows the growth in the LEI-N over the last 6 months. The indicator rose, at least modestly,
from February through June. However, growth has been choppy in the last four months. There were
sharp improvements in the LEI-N in both April and June. But, in each case, momentum was not
sustained in the month that followed. Taken together, results for the LEI-N suggest that economic
growth in Nebraska will be modest rather than robust at the end of 2013 and in early 2014.
Figure 2: Change in LEI - N
Last 6 Months
2.48%
1.37%
1.05%
1.24%
0.34%
0.43%
0.02%
0.00%
-1.24%
-1.05%
-2.48%
Feb 13
Mar 13
Apr 13
May 13
Jun 13
Jul 13
Figure 3 shows the components of change in the Leading Economic Indicator – Nebraska during July
2013. The change in the overall LEI – N is the weighted average of changes in each component (see page
5). There were few signals of economic growth among leading indicator components in July. No change
was identified among single-family building permits. There was a slight drop in both airline passenger
counts and manufacturing hours during the month. There also was a significant increase in initial
unemployment insurance claims during July, a negative signal for the labor market. Business
expectations were negative in July. Respondents to the Survey of Nebraska Business projected a slight
decline in both sales and employment in their business over the next six months. Finally, the value of the
U.S. dollar continued to rise during July. This is a negative development for Nebraska’s large export
sector in agriculture and manufacturing. Note that the trend adjustment component pictured in Figure
3 is discussed on page 5.
Figure 3: LEI-N Components of Change
July 2013
2.48%
1.24%
0.12%
0.00%
-0.23%
-0.16%
-0.06%
Business
Expectations
-0.06%
-1.24%
Manufacturing
Hours
0.00%
-0.66%
Trend Adjustment
Initial UI Claims
Dollar Exchange
Rate
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 increased by 0.22% between June and July of 2013, as seen in Figure 4.
Figure 4: Change in CEI-N
July 2013
2.66%
1.33%
Rapid Growth
Moderate Growth
0.22%
0.00%
Moderate Decline
-1.33%
Rapid Decline
-2.66%
The modest increase in the CEI-N during July is consistent with the pattern of growth since March 2013,
as seen in Figure 5. Changes in the LEI-N during May and June, taken together, represent a modest
increase in the LEI-N. Growth also was modest in March and April. Such modest growth represents an
improved rate of growth in the Nebraska economy, given that the CEI-N declined in both January and
February. A key question is whether growth will continue to improve during the year, reaching a
moderate rather than modest pace in the second half of 2013.
Figure 5: Change in CEI-N
Last 6 Months
2.66%
1.33%
0.86%
0.12%
0.22%
0.06%
0.00%
-1.33%
-0.51%
-0.67%
-2.66%
Feb 13
Mar 13
Apr 13
May 13
Jun 13
Jul 13
As seen in Figure 6, only one of the four components of the CEI-N rose during July. There was a solid
increase in electricity sales during July, even after adjusting for weather conditions during the month.
However, there was a slight decrease in both private wages and agricultural prices. The decline in
private wages is consistent with the disappointing report on U.S. average wages, weekly hours and job
growth which was released earlier this month. Finally, respondents to the Survey of Nebraska Business
reported a modest decline in sales activity 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.
3
Figure 6: CEI-N Components of Change
July 2013
2.66%
1.33%
0.68%
-0.12%
-0.04%
Agricultural
Commodities
-1.33%
Private
Wages
0.00%
-0.30%
Business
Conditions
Electricity
Sales
-2.66%
Figure 7 shows the forecast for the CEI-N over the next six months. The forecast reflects the
improvement in the LEI-N from February through June, as seen in Figure 2, as well as this month’s
decline in the leading economic indicator. The forecast calls for moderate growth in the CEI-N through
November, but combined growth will slow in December 2013 and January 2014. Moderate growth in
CEI-N during the August to November period will ensure moderate overall economic growth in the state
of Nebraska for the year 2013.
Figure 7: 6-Month Forecast of
Coincident Economic Indicator - Nebraska
1.00%
112.00
0.72%
0.66%
0.50%
0.24%
111.00
0.14%
0.05%
0.00%
110.00
-0.06%
-0.50%
109.00
-1.00%
108.00
Jul 13
Aug 13
Sep 13
Oct 13
Inde x Growth
Nov 13
Dec 13
Jan 14
Inde x 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
14.0748
3.5973
1.2264
10.0930
1.4609
4.3086
Variable
SF Housing Permits
Airline Passengers
Exchange Rate
Initial UI Claims
Manufacturing Hours
Survey Business Expectations
Inverse
STD
0.0710
0.2780
0.8154
0.0991
0.6845
0.2321
Coincident Economic Indicator - Nebraska
Weight
(Inverse STD
Standardize)
0.0326
0.1275
0.3740
0.0454
0.3140
0.1065
Variable
Electricity Sales
Private Wages
Agricultural Commodities
Survey Business Conditions
Standard
Deviation
4.8105
1.7597
3.2395
2.8060
Inverse
STD
0.2079
0.5683
0.3087
0.3564
Weight
(Inverse STD
Standardize)
0.1442
0.3943
0.2142
0.2473
Tables 2 and 3 show the calculation for the change in CEI-N and LEI-N between June and July 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)
Component
Current
Previous
Difference
Weight
SF Building Permits
72.67
72.61
0.06
0.03
0.00
0.00%
Airline Passengers
88.14
88.62
-0.48
0.13
-0.06
-0.06%
U.S. Dollar Exchange Rate
(Inverse)
102.23
102.89
-0.67
0.37
-0.25
-0.23%
Initial Unemployment
Insurance Claims (Inverse)
79.26
94.96
-15.70
0.05
-0.71
-0.66%
Manufacturing Hours
92.97
93.50
-0.54
0.31
-0.17
-0.16%
Survey Business
Expectations 1
49.38
-0.62
0.11
-0.07
-0.06%
Trend Adjustment
Total (weighted average)
1
106.24
107.37
Contribution
Percentage
Contribution
(Relative to
Previous LEI-N)
0.13
0.12%
-1.13
-1.05%
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
117.94
112.83
5.11
0.14
0.74
0.68%
96.95
97.27
-0.32
0.39
-0.13
-0.12%
154.56
154.76
-0.20
0.21
-0.04
-0.04%
-1.32
0.25
-0.33
-0.30%
0.24
0.22%
Private Wage
Agricultural Commodities
Survey Business Conditions
Total (weighted average)
1
1
48.68
109.36
109.12
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
80.00
CEI-N (May 2007=100)
LEI-N, 6 Month Forward (May 2007=100)
6