Wisconsin Leading Indicator Index:
Development and Evolution
Emily Camfield
Wisconsin Department of Revenue
November 6, 2009
Development
• Goal: Develop an index of leading
indicators specific to the Wisconsin
economy
• Data requirements: Base index on data
that
– Are reliable
– Can be updated monthly
– Lead economic activity
2
Challenges
• Finding enough Wisconsin specific
variables that can be used in the index,
meeting the desired requirements
• Benchmarking – what data series to use to
gauge troughs and peaks in the Wisconsin
economy?
3
Inspiration: Conference Board
National Index of Leading
Indicators
Ten components:
–
Average weekly hours worked by manufacturing workers
–
Average weekly initial claims for unemployment insurance
–
Amount of manufacturers' new orders for consumer goods and
materials
–
Amount of manufacturers' new orders for capital goods unrelated to
defense
–
Vendor performance, slower deliveries diffusion index
–
Number of new building permits for residential buildings
–
The S&P 500 stock index
–
Inflation-adjusted money supply (M2)
–
Spread between long and short interest rates (i.e. the yield curve)
–
Consumer expectations
4
Inspiration
• Iowa’s leading indicator:
– Developed by their state revenue office
several years ago
– Uses state components, similar to those in the
national index
– Uses a 12-month moving average for all
components
– More info at:
http://www.iowa.gov/tax/taxlaw/ILIISept09.pdf
5
Other State Indicators
• Texas – published by the Dallas Federal
Reserve
• Philadelphia Federal Reserve – publishes
a leading indicator for the states in its
district (DE, NJ, PA)
• Oregon – published by the Oregon Office
of Economic Analysis
6
Leading Indicator, Take 1
• Components:
– Benchmark series (to compare to Leading
Indicator Index):
• Total nonfarm employment, 12-month moving
average, seasonally adjusted.
– Other series considered:
• Phil Fed Coincident Indicator for Wisconsin
• Wisconsin GDP
7
Components
• Wisconsin Specific:
–
–
–
–
–
–
–
Wisconsin housing permits
Average weekly manufacturing hours
Wisconsin Trade-weighted value of the Dollar
Employment in Professional & Business Services
Diesel Fuel Consumption
Wisconsin withholding tax revenues
Average monthly Initial Claims
• National:
– Yield Spread
– S&P 500 stock market index
8
Components Not Used
• Sales tax revenues
• PMI new orders index
• University of Michigan/Reuters Consumer
Sentiment Index
• Agricultural Prices in Wisconsin
– Corn
– Dairy
9
Leading Indicator
Prior to 2009
126
Index 1991=100
124
122
120
118
116
114
99
00
01
02
03
Leading Indicator Index
04
05
06
07
08
Employment Index
10
Six-Month Moving Average
4%
2%
0%
-2%
-4%
-6%
99
00
01
02
03
04
05
06
07
08
Six Month Annualized Change
11
Diffusion Index
100
90
80
70
60
50
40
30
20
10
99
00
01
02
03
04
05
06
07
08
Diffusion Index
12
Mid-year, Employment Started to
Flatten Out
Total Nonfarm Employment in Wisconsin
2,820
2,810
2,800
2,790
2,780
2,770
2,760
2,750
2,740
2,730
2009Q1
2009Q2
2009Q3
13
But the Leading Indicator
Continued to Decline
Wisconsin Leading Indicator Index
January - September 2009
118
117
116
115
114
113
112
2009Q1
2009Q2
2009Q3
14
Revisions to the Index
• Changed the benchmark series (total
nonfarm employment) from a 12 to a 3month moving average
• Converted most components of the index
from a 12 to a 3-month moving average
– Problem: not all data seasonally adjusted
– Problem 2: timeliness of data
15
Revised Index
Bottomed Out in April 2009
Wisconsin Leading Indicator Index
January-September 2009
Using 3-month Moving Average
113.5
113.0
112.5
112.0
111.5
111.0
110.5
110.0
109.5
2009Q1
2009Q2
2009Q3
16
Wisconsin Housing Permits
Wisconsin Housing Permits
3-Month Moving Average, Seasonally Adjusted
4.0
3.5
Thousands
3.0
2.5
2.0
1.5
1.0
0.5
00
01
02
03
04
Source: U.S. Census Bureau
05
06
07
08
09
17
Average Manufacturing Hours
Average Weekly Manufacturing Hours
3-Month Moving Average, Seasonally Adjusted
42.4
42.0
41.6
41.2
40.8
40.4
40.0
39.6
39.2
38.8
38.4
00
01
02
03
04
05
Source: U.S. Bureau of Labor Statistics
06
07
08
09
18
Wisconsin Trade-Weighted Value of
the Dollar
WI Value of the $, Major trading partners, total exports
130
120
110
100
90
80
00
01
02
03
04
05
06
07
08
09
Source: Wisconsin Department of Revenue
19
WI Emp in Prof and Business Services
Wisconsin Employment in Professional and Business Services
3-Month Moving Average, Seasonally Adjusted
290
280
Thousands
270
260
250
240
230
00
01
02
03
04
05
06
07
08
09
Source: Wisconsin Department of Workforce Development
20
Diesel Fuel Consumption
Diesel Fuel Consumption
3-Month Moving Average, Seasonally Adjusted
72
Millions of Gallons
68
64
60
56
52
00
01
02
03
04
05
06
Source: Wisconsin Department of Revenue
07
08
09
21
Real Withholding Collections
Real Withholding Collections
3-Month Moving Average, Seasonally Adjusted
270
260
Thousands
250
240
230
220
210
00
01
02
03
04
05
06
Source: Wisconsin Department of Revenue
07
08
09
22
Initial Unemployment Ins. Claims
Wisconsin Initial Unemployment Claims
3-Month Moving Average, Seasonally Adjusted
28,000
Thousands
24,000
20,000
16,000
12,000
8,000
00
01
02
03
04
05
06
07
08
09
Source: Wisconsin Department of Workforce Development
23
S&P 500 Index
S&P 500 Stock Market Index
1,600
1,500
1,400
1,300
1,200
1,100
1,000
900
800
700
00
01
02
03
04
05
06
07
08
09
Source: Standard & Poor’s
24
Yield Curve
Yield Curve, 1960 - 2009
4%
3%
2%
1%
0%
-1%
-2%
60
65
70
75
80
85
90
95
00
05
Source: Federal Reserve Board
25
Revised Index
Using Three-Month Moving Averages
128
Index 1991=100
124
120
116
112
108
99
00
01
02
03
04
Leading Indicator Index
05
06
07
08
09
Employment Index
26
6-Month Annualized Change
Using Revised Index
5.0%
2.5%
0.0%
-2.5%
-5.0%
-7.5%
-10.0%
-12.5%
-15.0%
99
00
01
02
03
04
05
06
07
08
09
Six Month Annualized Change
27
Diffusion Index
Using Revised Index
100
90
80
70
60
50
40
30
20
10
99
00
01
02
03
04
05
06
07
08
09
Diffusion Index
28
Questions/Comments
• Visit us on the web:
http://www.revenue.wi.gov/report/e.html#e
conomy
• My contact info:
emily.camfield@revenue.wi.gov
608-261-5174
29