Nebraska Monthly Economic Indicators: June 21, 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) rose by 0.09% during May 2013.
The small increase in the LEI-N, which predicts economic growth in the state six months in the
future, follows a solid increase in April. Taken together, results for the two months suggest
moderate economic growth in Nebraska during the fall of 2013. Looking at individual
components of the LEI-N, three of the six components of the LEI-N rose during May. Singlefamily building permits and airline passengers both rose during the month, indicating strength
in the housing sector and the broader economy. Business expecations also rose. In particular,
respondents to the Survey of Nebraska Business projected an increase in business sales and
employment over the next six month. Among declining components, manufacturing hours
dropped during May. Initial claims for unemployment insurance also rose, a negative signal for
the job market. Finally, the value of the U.S. dollar rose during May, as it has done most of this
year. An increase in the value of the U.S. dollar is challenging for exporters.
Leading Economic Indicator – Nebraska
Figure 1 shows the change in the Leading Economic Indicator – Nebraska (LEI-N) in May 2013, compared
to the previous month. The LEI-N, which predicts economic growth six months into the future, increased
by 0.09% in May.
Figure 1: Change in LEI-N
May 2013
2.50%
1.25%
0.00%
Rapid Growth
Moderate Growth
0.09%
Moderate Decline
-1.25%
Rapid Decline
-2.50%
1
Figure 2 shows the growth in the LEI-N over the last 6 months. Results show that the small increase in
the LEI-N in May followed solid growth during April 2013. In other words, results for May failed to build
on the solid growth signal from April. This implies moderate, rather than strong, economic growth in
Nebraska during the fall of 2013. Note that revisions to manufacturing hours led the value of the LEI-N
to switch from a modest decrease to a modest increase during March of 2013.
Figure 2: Change in LEI - N
Last 6 Months
2.50%
1.00%
1.25%
0.41%
0.30%
0.29%
0.09%
0.00%
-0.04%
-1.25%
-2.50%
Dec 12
Jan 13
Feb 13
Mar 13
Apr 13
May 13
Figure 3 shows the components of change in the Leading Economic Indicator – Nebraska during May
2013. The change in the overall LEI – N is the weighted average of changes in each component (see page
5). Three of the six components of the leading indicator rose in May. Both single-family building permits
and airline passenger counts rose during May, suggesting strength in both the housing sector and the
broader economy. Further, respondents to the Survey of Nebraska Business reported that they expect
improvements in sales and employment in their business over the next six months. Among declining
components, manufacturing hours declined during May. There also was an increase in initial
unemployment insurance claims, a disappointing sign for the labor market. Finally, the value of the U.S.
dollar rose during May, as it has done most of this year. An increase in the value of the U.S. dollar is
challenging for exporters. Finally, note that the trend adjustment component pictured in Figure 3 is
discussed on page 5.
Figure 3: LEI-N Components of Change
May 2013
0.32%
0.22%
0.08%
0.12%
Trend Adjustment
1.25%
Business
Expectations
2.50%
-0.17%
-0.40%
Initial UI Claims
-1.25%
Dollar Exchange
Rate
0.00%
-0.08%
Manufacturing
Hours
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 declined by 0.22% between April and May of 2013, as seen in Figure 4.
Figure 4: Change in CEI-N
May 2013
2.70%
1.35%
0.00%
Rapid Growth
Moderate Growth
Moderate Decline
-0.22%
-1.35%
Rapid Decline
-2.70%
The modest decline in the CEI-N during May followed two months of moderate increase in March and
April. Taken together, these results indicate that there has been anemic growth in the Nebraska
economy over the last three months. Note that revisions to electricity sales data lead the value of the
CEI-N to switch from a moderate increase to a moderate decrease during February of 2013.
Figure 5: Change in CEI-N
Last 6 Months
2.70%
1.35%
0.63%
0.21%
0.08%
0.00%
-0.53%
-0.35%
Jan 13
Feb 13
-0.22%
-1.35%
-2.70%
Dec 12
Mar 13
Apr 13
May 13
As seen in Figure 6, three of the four components of the CEI-N declined during May. Private wages was
the only component that increased, reflecting improvements in employment, hourly wages and hours
worked during May. Electricity sales declined slightly May, after adjusting for weather conditions during
the month. There also was a modest decline in seasonally-adjusted agricultural prices during May.
Finally, respondents to the Survey of Nebraska Business reported a 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
May 2013
2.70%
1.35%
0.49%
0.00%
-0.05%
-0.09%
-1.35%
-0.57%
Business
Conditions
Agricultural
Commodities
Private
Wages
Electricity
Sales
-2.70%
Figure 7 shows the forecast for the CEI-N over the next six months. The forecast reflects modest
improvement in the LEI-N over the past six months, as seen in Figure 2, and portends moderate growth
in the CEI-N from June through November of 2013. These results suggest that growth in CEI-N will
improve during the second half of 2013, yielding moderate overall economic growth during the year.
Figure 7: 6-Month Forecast of
Coincident Economic Indicator - Nebraska
1.00%
113.00
0.54%
0.43%
0.50%
0.41%
112.00
0.33%
0.14%
0.06%
111.00
0.00%
110.00
-0.50%
109.00
-1.00%
108.00
May 13
Jun 13
Jul 13
Aug 13
Index Growth
Sep 13
Oct 13
Nov 13
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
14.2293
3.6241
1.2307
9.8266
1.4764
4.9592
Variable
SF Housing Permits
Airline Passengers
Exchange Rate
Initial UI Claims
Manufacturing Hours
Survey Business Expectations
Inverse
STD
0.0703
0.2759
0.8126
0.1018
0.6773
0.2016
Coincident Economic Indicator - Nebraska
Weight
(Inverse STD
Standardize)
0.0328
0.1290
0.3798
0.0476
0.3166
0.0942
Variable
Electricity Sales
Private Wages
Agricultural Commodities
Survey Business Conditions
Standard
Deviation
4.8083
1.7473
3.2891
3.5298
Inverse
STD
0.2080
0.5723
0.3040
0.2833
Weight
(Inverse STD
Standardize)
0.1521
0.4185
0.2223
0.2071
Tables 2 and 3 show the calculation for the change in CEI-N and LEI-N between April and May 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
76.87
66.59
10.28
0.03
0.34
0.32%
Airline Passengers
90.22
88.45
1.77
0.13
0.23
0.22%
U.S. Dollar Exchange Rate
(Inverse)
103.71
104.18
-0.47
0.38
-0.18
-0.17%
Initial Unemployment
Insurance Claims (Inverse)
69.64
78.56
-8.92
0.05
-0.42
-0.40%
Manufacturing Hours
91.14
91.40
-0.27
0.32
-0.08
-0.08%
Survey Business
Expectations 1
50.88
0.88
0.09
0.08
0.08%
0.13
0.12%
0.09
0.09%
Component
Trend Adjustment
Total (weighted average)
1
105.77
105.68
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
111.52
112.18
-0.67
0.15
-0.10
-0.09%
95.68
94.40
1.28
0.42
0.54
0.49%
155.20
155.45
-0.25
0.22
-0.06
-0.05%
-3.03
0.21
-0.63
-0.57%
-0.25
-0.22%
Private Wage
Agricultural Commodities
Survey Business Conditions
Total (weighted average)
1
1
46.97
109.77
110.02
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 2011. The comparison ends in 2011
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 0.94.
Figure 8: 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
80.00
CEI-N (May 2007=100)
Real GDP (May 2007=100)
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
80.00
CEI-N (May 2007=100)
LEI-N, 6 Month Forward (May 2007=100)
6