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 »
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Index for May 2013
April’s slight slide of the Leading Index for Indiana (LII) was replicated in May. The May LII lost more ground, receding from a revised April value of 100.9 to 100.8.
Note: Hover over the lower graph and move the slider to change the time period displayed.
The economic data has presented a mixed picture recently, and the components of the LII were no exception. Despite the stock market going on a tear, the Dow Jones Transportation Index dipped a bit. There was also a marginal dip in the Purchasing Managers Index (PMI). Those factors outweighed the rise in the Housing Market Index (HMI) and the auto component of the LII.
The Index of Small Business Optimism rose 2.6 points to 92.1, just above the recovery average of 90.7. Yet pessimism abounds within the sector, as still far more of those surveyed expect business conditions to be worse in six months than those who think they will be better. Economic performance is contradictory—corporate profits are at record levels and the stock market has hit new highs, yet the small business half of the economy is expanding slowly, by a rate driven by population growth rather than economic dynamism.
The Thompson Reuters/University of Michigan Index of Consumer Sentiment rose last month, to 83.7 from 76.4, the highest it has been since July 2007.The Conference Board’s measure of the economic outlook for the next three to six months also climbed 0.6 percent in April, more than forecast. These are good signs and show that consumers are overcoming the effects of higher taxes and a package of federal spending cuts—“the sequester”—that could affect job creation.
The headline number for total GDP growth came in at 2.5 percent. It shows a domestic private sector that is doing reasonably well. The U.S. economy seems to have settled into a sustainable slow growth trajectory. If consumption grows at a 2.5 percent rate, investment at 5 percent (both business and residential), and government at just a little above zero, this will produce the so-so output growth of 2.5 percent. If housing construction regains its footing, however, the economy would grow at a rate above so-so.
Drivers of Change
The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) regained its ascent, moving up 3 points from a revised April value of 41. The Midwest housing index, after plummeting in April, dropping 9 points, made up some of its lost ground, moving up 5 points. While construction industry supply chains will take time to get re-established after recession-related cutbacks, builders’ views of current sales conditions have improved and expectations for the future a solidifying consumers—lured by affordable mortgage rates—head back to the market in force.
The Institute for Supply Management’s Purchasing Managers Index (PMI) sputtered, falling 0.6 points to 50.7. The PMI continues to hang around 50, the point at which purchasing managers perceive manufacturing activity to be growing, since May of last year.
April sales, while up 8.4 percent from a year ago, were 14.9 million units, which is the lowest recorded monthly SAAR for this year. Unfilled orders for motor vehicle bodies, parts and trailers, the auto sector component for the LII, increased almost imperceptibly.
The transportation and logistics component of the LII—the Dow Jones Transportation Average—defied the Dow’s climb in April and fell by 1.2 percent.
Given that inflation is virtually non-existent, given the expected headwinds of the sequester, and the overall slow economic growth, there is slim chance that the Fed policy of quantitative easing will get unwound anytime soon. The Fed’s policy has undercut the interest rate spread as a good indicator of the future direction of the national economy. As a result, the strength of the change in the measure does not provide a signal of the direction or strength of future economic activity in the state.
Source: Indiana Business Research Center, Indiana University Kelley School of Business