Nebraska Monthly Economic Indicators: May 17, 2013
Prepared by the UNL College of Business Administration, Department of Economics
Authors: Dr. Eric Thompson, Dr. William Walstad
Graduate Research Assistant: Adam George
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 1.16% during April 2013.
The increase in the LEI-N, which predicts economic growth in the state six months in the future,
suggests moderate economic growth in Nebraska during the fall of 2013. Looking at individual
components of the LEI-N, five of the six components of the LEI-N rose during April, while the
sixth component, manufacturing hours, remained unchanged. Single-family building permits
rose, rebounding from a sharp decline in March. Airline passengers counts also expanded in
April, along with business expectations. In particular, respondents to the Survey of Nebraska
Business projected an increase in business sales and employment over the next six month. Initial
claims for unemployment insurance dropped during April, a sign of strength in the labor market.
Finally, after two months of sharp increases, the value of the U.S. dollar declined during April.
This will provide relief to exporters who benefit from a lower-valued dollar.
Leading Economic Indicator – Nebraska
Figure 1 shows the change in the Leading Economic Indicator – Nebraska (LEI-N) in April 2013, compared
to the previous month. The LEI-N, which predicts economic growth six months into the future, increased
by 1.16% in April.
Figure 1: Change in LEI-N
April 2013
2.50%
Rapid Growth
1.16%
1.25%
0.00%
Moderate Growth
Moderate Decline
-1.25%
Rapid Decline
-2.50%
1
Figure 2 shows the growth in the LEI-N over the last 6 months. The figure shows uneven growth in the
LEI-N. The LEI-N increases one month only to decline the next. This uneven rate of growth in the LEI-N
suggests weak economic growth in Nebraska in the next few months. However, solid growth in the April
LEI-N indicates that growth should accelerate from weak to moderate in Nebraska later in 2013. Such an
improvement in growth, however, will need to be confirmed by continued improvements in the LEI-N
over the next few months.
Figure 2: Change in LEI - N
Last 6 Months
2.50%
1.16%
1.25%
0.39%
0.14%
0.00%
-0.06%
-1.25%
-0.33%
-1.04%
-2.50%
Nov 12
Dec 12
Jan 13
Feb 13
Mar 13
Apr 13
Figure 3 shows the components of change in the Leading Economic Indicator – Nebraska during April
2013. The change in the overall LEI – N is the weighted average of changes in each component (see page
5). Five of the six components of the leading indicator rose in April, while the sixth component,
manufacturing hours, was unchanged. Both single-family building permits and airline passenger counts
rose during April. There also was a decline in unemployment insurance claims, a sign of strength in the
labor market. Further, after several months of sharp increase, there was a decline in the value of the
U.S. dollar in April. A lower value for the U.S. dollar will support export activity. Finally, respondents to
the Survey of Nebraska Business reported that they expect solid improvements in sales and employment
in their business over the next six months. Note that the trend adjustment component pictured in Figure
3 is discussed on page 5.
Figure 3: LEI-N Components of Change
April 2013
0.06%
0.10%
Airline Passengers
Dollar Exchange
Rate
0.39%
0.00%
0.34%
0.13%
Trend Adjustment
0.14%
Building Permits
1.25%
Business
Expectations
2.50%
0.00%
-1.25%
Manufacturing
Hours
Initial UI Claims
-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 0.24% between March and April of 2013, as seen in Figure 4.
Figure 4: Change in CEI-N
April 2013
2.70%
1.35%
Rapid Growth
Moderate Growth
0.24%
0.00%
Moderate Decline
-1.35%
Rapid Decline
-2.70%
The CEI-N has grown in five of the last 6 months, as seen in Figure 5. The rate of growth has been
anemic, however. During 2013, there was a slight decline in the CEI-N in January, and only modest
increases from February through April.
Figure 5: Change in CEI-N
Last 6 Months
2.70%
1.35%
0.88%
0.24%
0.12%
0.06%
0.24%
0.00%
-0.07%
-1.35%
-2.70%
Nov 12
Dec 12
Jan 13
Feb 13
Mar 13
Apr 13
As seen in Figure 6, rising electricity sales were the reason for the improvement in the CEI-N during
April. Sales improved even after adjusting for weather conditions during the month. The other three
components of the CEI-N declined during April. Private wages declined modestly during April. There was
a drop in agricultural prices during the month, particularly in corn prices, that subtracted from growth in
the CEI-N. There also was a decline in business activity during April. Respondents to the Survey of
Nebraska Business reported a modest decline in sales and employment 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
April 2013
2.70%
1.35%
0.81%
-0.10%
-0.31%
-0.16%
Agricultural
Commodities
Business
Conditions
-1.35%
Private
Wages
0.00%
Electricity
Sales
-2.70%
Figure 7 shows the forecast for the CEI-N over the next six months. The forecast reflects the uneven
pattern of growth in the LEI-N over the past six months, as seen in Figure 2. The forecast shows
continued weak growth in the CEI-N during the next three months, from May through July of 2013. The
CEI-N, in fact, is expected to decline in May and fall slightly in July. Growth is expected to improve
beginning in August, with the rate of growth improving steadily from August through October of 2013. In
other words, a moderate rate of growth is anticipated later in the year.
Figure 7: 6-Month Forecast of
Coincident Economic Indicator - Nebraska
1.00%
113.00
0.55%
0.27%
0.50%
0.34%
0.37%
0.00%
112.00
111.00
-0.08%
-0.19%
-0.50%
110.00
-1.00%
109.00
Apr 13
May 13
Jun 13
Jul 13
Index Growt h
Aug 13
Sep 13
Oct 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
14.1857
3.6323
1.2337
9.8620
1.4511
5.0072
Variable
SF Housing Permits
Airline Passengers
Exchange Rate
Initial UI Claims
Manufacturing Hours
Survey Business Expectations
Inverse
STD
0.0705
0.2753
0.8106
0.1014
0.6892
0.1997
Coincident Economic Indicator - Nebraska
Weight
(Inverse STD
Standardize)
0.0328
0.1283
0.3776
0.0472
0.3210
0.0930
Variable
Electricity Sales
Private Wages
Agricultural Commodities
Survey Business Conditions
Standard
Deviation
4.6591
1.7170
3.3272
3.8685
Inverse
STD
0.2146
0.5824
0.3006
0.2585
Weight
(Inverse STD
Standardize)
0.1583
0.4295
0.2216
0.1906
Tables 2 and 3 show the calculation for the change in CEI-N and LEI-N between March and April 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
0.13% per month. The U.S. Leading Economic Indicator also has a trend adjacent factor.
Table 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
68.33
63.89
4.44
0.03
0.15
0.14%
Airline Passengers
88.16
87.65
0.51
0.13
0.07
0.06%
U.S. Dollar Exchange Rate
(Inverse)
104.13
103.84
0.29
0.38
0.11
0.10%
Initial Unemployment
Insurance Claims (Inverse)
80.82
72.33
8.49
0.05
0.40
0.39%
Manufacturing Hours
89.09
89.09
0.01
0.32
0.00
0.00%
Survey Business
Expectations 1
53.82
3.82
0.09
0.36
0.34%
Component
Trend Adjustment
Total (weighted average)
1
105.00
103.79
0.13
0.13%
1.21
1.16%
Survey results are a diffusion Index, which is always compared to 50
Table 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
105.85
5.67
0.16
0.90
0.81%
96.83
97.09
-0.25
0.43
-0.11
-0.10%
154.63
156.16
-1.52
0.22
-0.34
-0.31%
-0.96
0.19
-0.18
-0.16%
0.27
0.24%
Private Wage
Agricultural Commodities
Survey Business Conditions
Total (weighted average)
1
1
49.04
110.93
110.66
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 M onth Forward (May 2007=100)
6