Nebraska Monthly Economic Indicators: February 15, 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 0.36% during January
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 in the summer of 2013.
Looking at individual components of the LEI-N, four improved in January. There was strong
growth in single-family building permits during January, reflecting significant improvement in
the outlook for the housing sector over the last year. There also was modest improvement in
airline passengers counts, a drop in initial claims for unemployment insurance, and a drop the
value of the U.S.dollar during January. A drop in initial claims portends improvement in the labor
market while a drop in the value of the dollar should lead to improved export activity. Among
other components, there was a modest decline in manufacturing hours. Further, respondents to
the Survey of Nebraska Business reported negative expectations for business sales and
employment over the next six months. Business expectations have been negative for the past
five months. Business expectations must improve in order to see strong growth in the Leading
Economic Indicator – Nebraska.
Leading Economic Indicator – Nebraska
Figure 1 shows the change in the Leading Economic Indicator – Nebraska (LEI-N) in January 2013,
compared to the previous month. The LEI-N, which predicts economic growth six months into the
future, rose by 0.36% in December.
Figure 1: Change in LEI-N
January 2013
2.52%
1.26%
0.00%
Rapid Growth
Moderate Growth
0.36%
Moderate Decline
-1.26%
Rapid Decline
-2.52%
1
Figure 2 shows the growth in the LEI-N over the last 6 months. The figure shows that the leading
indicator grew strongly in August, continued to rise in September and October but at a moderate pace,
and declined in November. Since then the indicator again pointed to moderate growth. This six-month
pattern suggests that the Nebraska economy will grow solidly in early 2013, but that growth will
moderate in the middle of the year.
Figure 2: Change in LEI - N
Last 6 Months
2.52%
1.35%
1.26%
0.62%
0.72%
0.37%
0.36%
Dec 12
Jan 13
0.00%
-0.69%
-1.26%
-2.52%
Aug 12
Sep 12
Oct 12
Nov 12
Figure 3 shows the components of change in the Leading Economic Indicator – Nebraska during January
2013. The change in the overall LEI – N is the weighted average of changes in each component (see page
5). Four components contributed to the increase in the LEI-N. There was a strong increase in singlefamily home building permits. This increase suggests solid growth in home construction and related
industries in mid-2013. There also was a modest increase in airline passenger counts and a decrease in
initial unemployment insurance claims. A decline in jobless claims suggests that a growing share of
employers expect to maintain their workforce in the months to come. There also was a modest decrease
in the value of the U.S. dollar which should encourage future export activity. Two components of the
LEI-N declined in January. There was a modest decline in manufacturing hours. More significantly,
business expectations were negative in January. Specifically, respondents to the Survey of Nebraska
Businesses reported that they expect a decline in sales and employment in their business over the next
six months. Business expectations have been negative for the past 5 months. Finally, note that the trend
adjustment component pictured in Figure 3 is discussed on page 5.
Figure 3: LEI-N Components of Change
January 2013
2.52%
1.26%
0.38%
0.09%
0.04%
0.13%
0.06%
-0.10%
-0.24%
Manufacturing
Hours
Business
Expectations
0.00%
-1.26%
Trend Adjustment
Initial UI Claims
Dollar Exchange
Rate
Airline Passengers
Building Permits
-2.52%
2
Coincident Economic Indicator – Nebraska
The Coincident Economic Indicator - Nebraska (CEI-N) is a measure of the current size of the Nebraska
economy. In Figure 4, the CEI-N rose by 0.51% between December of 2012 and January of 2013.
Figure 4: Change in CEI-N
January 2013
2.78%
1.39%
0.00%
Rapid Growth
Moderate Growth
0.51%
Moderate Decline
-1.39%
Rapid Decline
-2.78%
As seen in Figure 5, the growth in the CEI-N during January represents continued improvement in the
Nebraska economy late in 2012 and early 2013. Note that the improvement in the January CEI-N was
predicted by growth in the LEI-N in August 2012 (see Figure 2).
Figure 5: Change in CEI-N
Last 6 Months
2.78%
1.20%
1.39%
0.51%
0.26%
0.00%
-0.24%
-0.18%
-1.39%
-1.45%
-2.78%
Aug 12
Sep 12
Oct 12
Nov 12
Dec 12
Jan 13
As seen in Figure 6, a solid improvement in electricity sales made a significant contribution to the
improvement in the CEI-N during January. Electricity sales were up even after adjusting for weather and
other seasonal factors in January. Higher prices for agricultural commodities also contributed to growth
in the CEI-N during January. Among remaining components, there was a slight improvement in private
wages. However, respondents to the Survey of Nebraska Business reported a slight 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
January 2013
2.78%
1.39%
0.37%
0.02%
0.21%
0.00%
-0.09%
-1.39%
Business
Conditions
Agricultural
Commodities
Private
Wages
Electricity
Sales
-2.78%
Figure 7 shows the forecast for the CEI-N over the next six months. The forecast reflects changes in the
value of LEI-N between August of 2012 and January of 2013 (see Figure 2). Recall that the LEI-N grew
rapidly during August 2012 but the rate of growth slowed in the months that followed. This pattern
suggests the Nebraska economy should continue to grow solidly at the beginning of 2013 but then
growth will moderate in mid-2013. These expectations are depicted in Figure 7.
Figure 7: 6-Month Forecast of
Coincident Economic Indicator - Nebraska
1.00%
115.00
0.66%
0.50%
0.34%
0.25%
0.08%
0.11%
114.00
0.20%
0.00%
113.00
-0.50%
112.00
-1.00%
111.00
Jan 13
Feb 13
Mar 13
Apr 13
Index Growth
May 13 Jun 13
Index Value
Jul 13
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
14.3430
3.6368
1.2443
9.9471
1.4365
5.5084
Variable
SF Housing Permits
Airline Passengers
Exchange Rate
Initial UI Claims
Manufacturing Hours
Survey Business Expectations
Inverse
STD
0.0697
0.2750
0.8037
0.1005
0.6961
0.1815
Coincident Economic Indicator - Nebraska
Weight
(Inverse STD
Standardize)
0.0328
0.1293
0.3779
0.0473
0.3273
0.0854
Variable
Electricity Sales
Private Wages
Agricultural Commodities
Survey Business Conditions
Standard
Deviation
4.8204
1.7889
3.3186
4.9605
Inverse
STD
0.2075
0.5590
0.3013
0.2016
Weight
(Inverse STD
Standardize)
0.1634
0.4404
0.2374
0.1588
Tables 2 and 3 show the calculation for the change in CEI-N and LEI-N between December 2012 and
January 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
81.35
69.20
12.14
0.03
0.40
0.38%
Airline Passengers
90.77
90.07
0.70
0.13
0.09
0.09%
U.S. Dollar Exchange Rate
(Inverse)
105.71
105.59
0.12
0.38
0.04
0.04%
Initial Unemployment
Insurance Claims (Inverse)
75.39
74.06
1.33
0.05
0.06
0.06%
Manufacturing Hours
90.47
90.80
-0.33
0.33
-0.11
-0.10%
Survey Business
Expectations 1
47.10
-2.90
0.09
-0.25
-0.24%
0.13
0.13%
0.37
0.36%
Component
Trend Adjustment
Total (weighted average)
1
104.34
103.97
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
103.58
101.05
2.53
0.16
0.41
0.37%
96.62
96.57
0.06
0.44
0.02
0.02%
158.27
157.30
0.97
0.24
0.23
0.21%
-0.63
0.16
-0.10
-0.09%
0.57
0.51%
Private Wage
Agricultural Commodities
Survey Business Conditions
Total (weighted average)
1
1
49.37
112.22
111.65
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 0.91.
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
80.00
CEI-N (May 2007=100)
LEI-N, 6 Month Forward (May 2007=100)
6