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Iowa economic indicator points to little growth

The Iowa Leading Indicators Index (ILII) rose to 104.6 (100=1999) in January 2012 from 104.5 in December. The Iowa non-farm employment coincident index recorded a 0.05 percent rise in January, extending the streak of employment gains to sixteen consecutive months. In March, the Bureau of Labor Statistics released revised employment numbers, lowering 2011 monthly values by an average of 0.33 percent.

The ILII’s value increased 0.1 percent in January, after a 0.2 percent increase in December and a 0.1 percent decline in November. During the six-month span through January, the ILII decreased 0.2 percent (an annualized rate of -0.4 percent). The six-month diffusion index was 50.0 with four of the eight components (average weekly manufacturing hours, the national yield spread, the new orders index, and diesel fuel consumption) experiencing a decline of more than 0.05 percent over the last half a year.

In January, four of eight Iowa Leading Indicators Index components contributed positively. The positive contributors were the Iowa stock market index, residential building permits, initial unemployment insurance claims (inverted), and average weekly manufacturing hours. The new orders index, the national yield spread, the agricultural futures profits index, and diesel fuel consumption contributed negatively.

ILII Components

Iowa stock market index: Capitalization-weighted index of 33 Iowa-based or Iowa- concentrated publicly-traded companies. During January 2012, 29 of the 33 companies gained value, including 10 of the 12 financial-sector companies. The stock market index increased to 70.19, contributing 0.16 to the ILII value.

Building permits: Number of total permits issued in Iowa for the construction of residential housing units. Changes are calculated based on a 12-month moving average. For January, this component contributed 0.05 to the ILII with the 12-month moving average increasing to 637. January 2012 permits were 2.2 percent higher than the number of permits issued in January 2011, but still 54.4 percent below the historical average for January (1998-2008).

Average weekly unemployment claims: Weekly average of initial claims for unemployment insurance in Iowa. Changes are calculated based on a 12-month moving average and are inverted when added to the ILII. This component contributed 0.05 to the ILII value. The 12-month moving average of claims fell to 3,673 with unemployment claims for the month 13.1 percent below January 2011 claims. Initial claims for January 2012 were only 0.2 percent above average January claims (1987-2008) after three years of historically high claims.

Average weekly manufacturing hours: Weekly average of hours worked in the manufacturing sector in Iowa. Changes are calculated based on a 12-month moving average. For January 2012, this component contributed 0.03 to the ILII value with the 12- month moving average increasing to 40.4. January 2012 hours were 40.8 compared to 40.3 hours in January 2011. In March, the Bureau of Labor Statistics released revised manufacturing hours numbers, but in 2011, only the December value was revised from 42 to 41.9.

New orders index: Diffusion index measuring the share of purchasing managers in Iowa reporting increases in orders received for manufacturing output. Changes are calculated based on a 12-month moving average. In January, the monthly value of the index rose to 77.1 from 65.3 in December, but it was below the value of 78.2 from a year ago. The 12- month moving average of the new orders index fell to 65.4, contributing -0.01 to the ILII.

Yield spread: Difference between the yield on 10-year Treasury bonds and 3-month Treasury notes. During January, the yield spread fell to 1.94 percent as the long-term rate fell 1 basis point and the short-term rate rose 2 basis points. For the month, the yield spread contributed -0.01 to the ILII.

Agricultural futures profits index: Composite measure of corn, soybean, hog, and cattle expected profits, measured as the futures price less estimated breakeven costs, weighted by the respective share of Iowa annual cash receipts. Changes are calculated based on a 12- month moving average. During January, this component contributed -0.05 to the ILII value as the 12-month moving average of expected profits for corn, soybeans, and cattle declined. Compared to last year, corn prices are down 1.1 percent, soybean prices are down 13.2 percent and expected profitability decreased for both in January. Although cattle prices are up 14.1 percent that increase was not enough to offset the increase in production costs over the last year. With hog prices up 5.5 percent over last year, expected profitability rose slightly.

Diesel fuel consumption: Number of taxable gallons of diesel fuel sold in Iowa. Changes are calculated based on a 12-month moving average. Diesel fuel consumption decreased 5.4 percent between January 2011 and 2012, causing the 12-month moving average to fall 0.5 percent to 54.93 million gallons, and contributing -0.08 to the ILII value.

Comments

The Iowa Leading Indicators Index (ILII) is designed to forecast the future direction of economic activity in the state of Iowa. The techniques used to build the ILII follow those used by The Conference Board to construct the national Leading Economics Index (LEI) prior to the 2001 revisions. A one-month movement in such an index does not produce a clear signal, rather it is necessary to consider the direction of the index over several consecutive months. A contraction signal in the ILII is considered reliable when two conditions are met: 1. The index declines by at least two percent over a six month period (using an annualized rate); and, 2. A majority of the individual components decline over those six months (the six-month diffusion index less than 50.0).

The Iowa non-farm employment coincident index measures the change in non-seasonally adjusted, total non-farm employment in the state of Iowa. Changes are based on a 12-month moving average of employment and are computed as symmetric percentage changes. The index is a representation of overall economic activity in Iowa.

The employment index and the ILII are constructed to have a value of 100 in the year 1999.

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