Nebraska Monthly Economic Indicators: December 21, 2012
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) dropped modestly, declining by
0.18%, during November 2012. The decline in the LEI-N, which predicts economic growth in the
state six months in the future, followed four months of increase. The modest decline in the LEI-N
is not sufficient to reverse the growth trend seen in the previous four months.
The Nebraska economy is expected to expand moderately in December 2012 and the first half of
2013. Looking at individual components of the LEI-N, only one component, the number of singlefamily building permits, increased in November. This permit growth has been a bright spot for
the Nebraska economy during much of 2012. The contributions from the other five components
were negative. Manufacturing hours and airline passengers showed a modest decline. Initial
claims for unemployment benefits rose. The value of the U.S. dollar rose during November,
which may reduce export activity over the next six months. Finally, respondents to the Survey of
Nebraska Business reported negative expectations for business sales over the next six months.
Leading Economic Indicator – Nebraska
Figure 1 shows the change in the Leading Economic Indicator – Nebraska (LEI-N) in November 2012,
compared to the previous month. The LEI-N, which predicts economic growth six months into the
future, declined by 0.18% in November.
Figure 1: Change in LEI-N
November 2012
2.52%
1.26%
0.00%
Rapid Growth
Moderate Growth
Moderate Decline
-0.18%
-1.26%
Rapid Decline
-2.52%
Figure 2 shows the growth in the LEI-N over the last 6 months. The figure shows that the leading
indicator grew from July through October, after declining in June. This pattern suggests that the
Nebraska economy will have solid growth in December 2012 and the first half of 2013.
1
Figure 2: Change in LEI - N
Last 6 Months
2.52%
1.20%
1.26%
1.42%
0.81%
0.80%
0.00%
-0.18%
-1.26%
-0.99%
-2.52%
Jun 12
Jul 12
Aug 12
Sep 12
Oct 12
Nov 12
Figure 3 shows the components of change in the Leading Economic Indicator – Nebraska during
November 2012. The change in the overall LEI – N is the weighted average of changes in each
component (see page 5). Only one component contributed to the increase in the LEI-N. In particular,
there was a strong increase in single-family building permits in Nebraska during November. All other
components declined during the month. There was a decrease in seasonally adjusted airline passenger
counts, which suggests a weakening of future business activity and consumer confidence. There was a
slight decline in manufacturing hours and an increase in initial unemployment claims. There also was a
modest decline in business expectations. In particular, respondents to the Survey of Nebraska
Businesses reported that they expect a modest decline in sales in their business over the next six months
though employment is expected to remain steady. There also was modest increase in the value of the
U.S. dollar, which will be a negative for Nebraska’s large export sector in the coming months. Finally,
note that the trend adjustment component pictured in Figure 3 is discussed on page 5.
Figure 3: LEI-N Components of Change
November 2012
2.52%
1.26%
0.52%
0.13%
-0.16%
-0.28%
-0.28%
-0.04%
-0.06%
Dollar Exchange
Rate
Initial UI Claims
Manufacturing
Hours
Business
Expectations
-1.26%
Airline Passengers
0.00%
Trend Adjustment
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 declined slightly, by 0.02%, between October and November of 2012.
Figure 4: Change in CEI-N
November 2012
2.84%
1.42%
0.00%
Rapid Growth
Moderate Growth
Moderate Decline
-0.02%
-1.42%
Rapid Decline
-2.84%
As seen in Figure 5, the slight decline in the CEI-N during November is consistent with a slowdown in the
Nebraska economy during the fall. After expanding overall during June and July, the CEI-N fluctuated
slightly in August and September, and then dropped in October. The CEI-N for November is essentially
unchanged. Note that a decline in the November CEI-N was predicted by the decline in the LEI-N in June
2012 (see Figure 2).
Figure 5: Change in CEI-N
Last 6 Months
2.84%
1.42%
1.03%
0.59%
0.24%
0.00%
-0.02%
-0.24%
-1.42%
-1.21%
-2.84%
Jun 12
Jul 12
Aug 12
Sep 12
Oct 12
Nov 12
As seen in Figure 6, electricity sales and business conditions contributed to the decline in the CEI-N.
Weather adjusted electricity sales declined in November relative to October. Further, respondents to
the Survey of Nebraska Business reported a slight decline in sales and employment activity in recent
months. Offsetting the declines were a slight rise in private wages and a solid increase in agricultural
commodity prices over the last 6 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.
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Figure 6: CEI-N Components of Change
November 2012
2.84%
1.42%
0.01%
0.32%
0.00%
-1.42%
-0.08%
-0.26%
Business
Conditions
Electricity Sales
Private Wages
Agricultural
Commodities
-2.84%
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 June and November of 2012 (see Figure 2). Recall that the LEI-N declined during
June but then rose solidly from July through October before a modest decline in November. This pattern
suggests the Nebraska economy should show growth in December 2012 and in the first half of 2013.
These expectations are depicted in Figure 7. The CEI-N is expected to manage solid increases during the
December 2012 through February 2012 period, and then growth will moderate from March through
May of 2013.
Figure 7: 6-Month Forecast of
Coincident Economic Indicator - Nebraska
1.00%
0.53%
0.68%
115.00
0.65%
0.36%
0.50%
114.00
0.21%
0.12%
113.00
0.00%
112.00
-0.50%
111.00
-1.00%
110.00
Nov 12
Dec 12
Jan 13
Feb 13
Index Growth
Mar 13
Apr 13
Index Value
May 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
14.3746
3.6617
1.2480
9.9761
1.4472
8.8351
Variable
SF Housing Permits
Airline Passengers
Exchange Rate
Initial UI Claims
Manufacturing Hours
Survey Business Expectations
Inverse
STD
0.0696
0.2731
0.8013
0.1002
0.6910
0.1132
Coincident Economic Indicator - Nebraska
Weight
(Inverse STD
Standardize)
0.0340
0.1333
0.3912
0.0489
0.3373
0.0553
Variable
Electricity Sales
Private Wages
Agricultural Commodities
Survey Business Conditions
Standard
Deviation
4.8325
1.8329
3.3326
8.2757
Inverse
STD
0.2069
0.5456
0.3001
0.1208
Weight
(Inverse STD
Standardize)
0.1764
0.4649
0.2557
0.1030
Tables 2 and 3 show the calculation for the change in CEI-N and LEI-N between October and November.
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. There is also a trend adjustment factor for the U.S. Leading Economic Indicator.
Table 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
73.85
58.02
15.84
0.03
0.54
0.52%
Airline Passengers
90.51
91.78
-1.26
0.13
-0.17
-0.16%
U.S. Dollar Exchange Rate
(Inverse)
104.90
105.64
-0.75
0.39
-0.29
-0.28%
Initial Unemployment
Insurance Claims (Inverse)
63.98
69.89
-5.90
0.05
-0.29
-0.28%
Manufacturing Hours
92.24
92.36
-0.12
0.34
-0.04
-0.04%
Survey Business
Expectations 1
48.90
-1.10
0.06
-0.06
-0.06%
Trend Adjustment
Total (weighted average)
1
104.02
104.20
Contribution
Percentage
Contribution
(Relative to
Previous LEI-N)
0.13
0.13%
-0.18
-0.17%
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
101.03
102.65
-1.63
0.18
-0.29
-0.26%
93.65
93.63
0.02
0.46
0.01
0.01%
154.53
153.16
1.37
0.26
0.35
0.32%
-0.92
0.10
-0.09
-0.08%
-0.02
-0.02%
Private Wage
Agricultural Commodities
Survey Business Conditions
Total (weighted average)
1
1
49.08
111.49
111.51
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.
Figure 9: 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
CEI-N (May 2007=100)
2012.1
2012.4
2012.7
2012.10
2013.1
2013.4
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
80.00
LEI-N, 6 Month Forward (May 2007=100)
6