Leading Index for Indiana
Updated monthly, the Leading Index for Indiana™ (LII) was developed for Hoosier businesses and governments to provide a signal for changes in the general direction of the Indiana economy. In contrast to The Conference Board’s Leading Economic Index and other national indexes, the LII focuses on key sectors that are important to the Indiana economy. Learn more about the index »
Notice to Users: Regular production of the LII will be discontinued as of October 2014. Learn more »
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Index for September 2014
The Leading Index for Indiana (LII) made solid upward progress this month with a reading of 102.0, up from a revised August reading of 101.5.
Note: Hover over the lower graph and move the slider to change the time period displayed.
All the components of the LII contributed to the robust rise. Of particular note is home builder’s sentiment, which rose to its highest reading since November 2005.
If trends continue in the auto sector, this looks to be a banner year for automakers. There were 1.6 million light-vehicle sales in August, up 10.5 percent from July 2014 and better than August 2013 by 5.4 percent. The August 2014 seasonally adjusted annual rate (SAAR) for light-vehicle sales was 17.5 million, a first for this year.
Based on Gallup's U.S. Economic Confidence Index and the Small Business Optimism Index, sentiment for consumers and small business has hit a flat patch—in essence, taking a wait-and-see posture. Perhaps the average consumer and small business owner are finding it hard to hope for the best.
Last month, we noted that next month’s LII will be the last regularly released. This is because, as repeatedly stated, the interest rate component of the LII has been made useless due to Federal Reserve policy. Also important to repeat: the yield spreads that once foretold of changes in economic growth have proven to be less reliable. Last month, we cited a study by Wells Fargo Securities documenting that the relationship between the interest rate spread and GDP growth is questionable. While the interest rate spread is only one of five components of the LII, the tenuous relationship in this component would require a rethinking and reconfiguring of the design of the LII.
Drivers of Change
- Builders in many locations across the country reported improving buyer interest and increased traffic, which translated in a 4 point jump in the National Association of Home Builders/Wells Fargo Housing Market Index. Just the same, the NAHB notes that builders are still not seeing much activity from first-time home buyers.
The Institute of Supply Management’s Purchasing Manager’s Index (PMI) indicates that the manufacturing sector expanded in August for the 15th consecutive month. The PMI rose by 1.9 percentage points from July's reading of 57.1 percent. This month's PMI reflects the highest reading since March 2011.
The increase in the auto component of the LII—unfilled orders for automobile bodies and parts—rose by only a smidge, 0.2 percent. That said, auto sales are on a tear.
- The transportation and logistics component of the LII, the Dow Jones Transportation Average, increased a convincing 3.2 percent.
- The interest rate spread was virtually unchanged.
The historical series for the LII reflects regular monthly revisions in source data. Users that analyze historical trends in the LII are encouraged to update the entire data series to eliminate discontinuities in the data.
Source: Indiana Business Research Center, Indiana University Kelley School of Business