Nebraska Monthly Economic Indicators: July 28, 2021 Prepared by the UNL College of Business, Bureau of Business Research
Leading Economic Indicator..…………………………………………….1 Author: Dr. Eric Thompson Coincident Economic Indicator……………………………………….…3 Weights and Component Shares…………………………………….…5 Performance of the LEI-N and CEI-N…………….……………………6
Summary: The LEI-N rose by 1.17% during June 2021, the ninth consecutive monthly increase. Steady improvement in the leading indicator implies that economic growth will be strong in Nebraska during the second half of 2021. Three components of the leading indicator rose during June. Business expectations, airline passenger counts, and initial claims for unemployment insurance all showed improvement. Specifically, respondents to the June Survey of Nebraska Business reported plans to increase sales and employment in the state over the next six months. Airline passenger enplanements rose sharply as the industry moved closer to pre-pandemic levels of activity. Initial claims for unemployment insurance fell during June.
Leading Economic Indicator – Nebraska Figure 1 shows the change in the Leading Economic Indicator – Nebraska (LEI-N) during June 2021 compared to the previous month. The LEI-N predicts economic growth six months into the future. The LEI-N rose by 1.17% during June.
Figure 1: Change in LEI-N June 2021
2.60%
Rapid Growth 1.17% 1.30%
Moderate Growth 0.00%
Moderate Decline -1.30% Rapid Decline Rapid Decline -2.60%
Figure 2 shows the change in the leading indicator over the last six months. The leading indicator has risen consistently and has been strong in recent months. This pattern is consistent with robust economic growth in Nebraska in the second half of 2021.
1 Figure 2: Change in LEI - N Last 6 Months 2.37% 2.60% 2.00% 1.24% 1.17% 1.30% 0.81% 0.86%
0.00%
-1.30%
-2.60% Jan 21 Feb 21 Mar 21 Apr 21 May 21 Jun 21
Figure 3 shows the components of change in the Leading Economic Indicator – Nebraska during June. The change in the LEI–N is the weighted average of changes in each component (see page 5). Three of six LEI- N components improved during June. Business expectations and airline activity were especially strong. Airline passenger counts rose sharply as the industry continued to recover. Respondents to the June Survey of Nebraska Business reporting plans to increase employment and sales over the next six months. Initial claims for unemployment insurance also fell in June, which is a positive sign for the state labor market. Building permits for single-family homes was a declining indicator during June. There was also a modest decline in manufacturing hours worked and a small increase in the value of the U.S. dollar. A rising dollar is challenging for agricultural producers, manufacturers, and other Nebraska businesses that compete in international markets.
Figure 3: LEI-N Components of Change June 2021
2.60%
1.30% 0.74% 0.59% 0.33% 0.00% -0.34% -0.07% -0.10% -1.30%
-2.60%
InitialClaims UI
Building Permits Building
AirlinePassengers
Dollar ExchangeRate ManufacturingHours BusinessExpectations
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 1.62% during June 2021, as seen in Figure 4.
Figure 4: Change in CEI-N June 2021
2.52% 1.62%
1.26%
0.00%
-1.26%
-2.52%
Figure 5 shows the change in the CEI-N over the last 6 months. The CEI-N declined in aggregate during the first quarter of 2021 but grew rapidly during the second quarter. Strong growth appears to be returning to the Nebraska economy.
Figure 5: Change in CEI-N Last Six Months
3.50% 2.73% 1.98% 1.62% 1.75% 1.42%
0.00% -0.23% -1.75%
-3.50% -3.05%
Jan21
Jun21
Apr 21
Feb21 Mar 21 Mar May21
3 Business conditions were strong in Nebraska during June. Three of four components of the CEI-N rose during the month. There was strong growth in agricultural commodity prices. Electricity sales also rose on a seasonally adjusted basis. In addition, businesses reported improving conditions. Respondents to the June Survey of Nebraska Business reported an increase in sales and employment during the last few months. Private wages were the one declining component. Private wages fell in real terms as inflation exceeded hourly wage growth. A detailed discussion of the components of the CEI-N and LEI-N can be found at https://business.unl.edu/research/bureau-of-business-research/ in Technical Report: Coincident and Leading Economic Indicators-Nebraska.
Figure 6: CEI-N Components of Change June 2021
2.60% 0.89% 1.14% 1.30% 0.24% 0.00%
-1.30% -0.65%
-2.60%
Business
Conditions
Agricultural
Commodities Private Wages ElectricitySales
Figure 7 shows a forecast for the CEI-N over the next six months. The forecast calls for growth in the CEI- N through December 2021, including strong growth from August through October. This finding is consistent with the recent increase in the LEI-N reported in Figure 2.
Figure 7: 6-Month Forecast of Coincident Economic Indicator - Nebraska 3.00% 144.00 142.00 1.32% 1.50% 1.18% 1.43% 0.78% 0.76% 140.00 0.27% 138.00 0.00% 136.00
-1.50% 134.00 132.00 -3.00% 130.00 Jun 21 Jul 21 Aug 21 Sep 21 Oct 21 Nov 21 Dec 21
Index Growth Index Value
4 Weights and Component Shares
Table 1 shows the weights 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 a smaller standard deviation, 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 with significant month-to-month fluctuations. Table 1: Component Weights for LEI-N and CEI-N Leading Economic Indicator - Nebraska Coincident Economic Indicator - Nebraska Weight Weight Standard Inverse (Inverse STD Standard Inverse (Inverse STD Variable Deviation STD Standardize) Variable Deviation STD Standardize) SF Housing Permits 13.6971 0.0730 0.0374 Electricity Sales 4.8222 0.2074 0.1700 Airline Passengers 6.2689 0.1595 0.0817 Private Wages 2.0960 0.4771 0.3911 Exchange Rate 1.1623 0.8604 0.4404 Agricultural Commodities 3.5189 0.2842 0.2329 Initial UI Claims 18.5958 0.0538 0.0275 Survey Business Conditions 3.9792 0.2513 0.2060 Manufacturing Hours 1.7534 0.5703 0.2919 Survey Business Expectations 4.2267 0.2366 0.1211 Tables 2 and 3 show the calculation for the change in LEI-N and CEI-N between May and June of 2021. Weights (from Table 1) are multiplied by the change to calculate the contribution of each component. Contributions are converted to percentage terms and summed. Table 2: Component Contributions to the Change in Leading Economic Indicator Leading Economic Indicator - Nebraska Component Index Value (May 2007=100) Percentage Contribution (Relative to Component Current Previous Difference Weight Contribution Previous LEI-N) SF Building Permits 75.62 91.11 -15.49 0.04 -0.58 -0.34% Airline Passengers 100.87 88.67 12.20 0.08 1.00 0.59%
U.S. Dollar Exchange Rate (Inverse) 83.43 83.69 -0.25 0.44 -0.11 -0.07%
Initial Unemployment Insurance Claims (Inverse) 122.13 101.73 20.40 0.03 0.56 0.33%
Manufacturing Hours 99.02 99.57 -0.55 0.29 -0.16 -0.10%
Survey Business Expectations1 60.36 10.36 0.12 1.25 0.74% Total (weighted average) 170.40 168.43 1.96 1.17% 1 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) Percentage Contribution (Relative to Component Current Previous Difference Weight Contribution Previous CEI-N)
Electricity Sales 180.82 173.86 6.96 0.17 1.18 0.89%
Private Wage 112.25 114.45 -2.20 0.39 -0.86 -0.65%
Agricultural Commodities 133.39 126.92 6.46 0.23 1.51 1.14%
Survey Business Conditions1 51.52 1.52 0.21 0.31 0.24%
Total (weighted average) 134.31 132.16 2.14 1.62% 1 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 the first quarter of 2021, using data provided by the Bureau of Economic Analysis, U.S. Department of Commerce. CEI-N closely tracks Nebraska’s real GDP for the period. The correlation coefficient between the two-pictured series is 0.95.
Figure 8: Coincident Economic Indicator - Nebraska Comparison with Nebraska Real Quarterly GDP 140.00
130.00
120.00
110.00
100.00
90.00
80.00
2009.5 2012.1 2014.9 2017.5 2020.1 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 2009.9 2010.1 2010.5 2010.9 2011.1 2011.5 2011.9 2012.5 2012.9 2013.1 2013.5 2013.9 2014.1 2014.5 2015.1 2015.5 2015.9 2016.1 2016.5 2016.9 2017.1 2017.9 2018.1 2018.5 2018.9 2019.1 2019.5 2019.9 2020.5 2020.9 2021.01 CEI-N (May 2007=100) Real GDP (May 2007=100) SA
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 track trends and movement in the CEI-N. The long-run correlation coefficient between CEI-N and six-month forward values of LEI-N is 0.86.
Figure 9: 6-Month Forward Value of Leading Economic Indicator - Nebraska Comparison with Coincident Economic Indicator - Nebraska
180.00 170.00 160.00 150.00 140.00 130.00 120.00 110.00 100.00 90.00
80.00
2002.5 2002.9 2003.1 2019.5 2019.9 2020.1 2000.1 2000.5 2000.9 2001.1 2001.5 2001.9 2002.1 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 2012.1 2012.5 2012.9 2013.1 2013.5 2013.9 2014.1 2014.5 2014.9 2015.1 2015.5 2015.9 2016.1 2016.5 2016.9 2017.1 2017.5 2017.9 2018.1 2018.5 2018.9 2019.1 2020.5 2020.9 CEI-N (May 2007=100) LEI-N, 6 Month Forward (May 2007=100)
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