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 April 2014
The Leading Index for Indiana (LII) continued its ambivalence in April, satisfied to stay even with last month’s revised reading of 101.1.
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The gains in the index components for manufacturing and transportation were not sufficient to move the index upward given that the other components were slightly lower or essentially unmoved.
While the National Federation of Independent Business usually plays the role of Eeyore, no matter what direction the LII moves, their Index of Small Business Confidence rose 2 percentage points, mostly reversing last month’s decline but failing once again to breach the 95 ceiling that has capped the index during the recovery. Six of the index components improved, two were unchanged, and two were lower. The net percent of owners planning to create new jobs did fall 2 points but remained positive, even if weak.
The Conference Board and PwC Measure of CEO Confidence™ further improved in the first quarter of 2014. The measure now reads 63, up from 60 in the previous quarter (a reading of more than 50 points reflects more positive than negative responses), and is at a two-year high. CEOs were more positive about short-term growth prospects in the U.S. and Europe, but less positive about prospects for Japan and emerging markets. Expectations for their own industries are more upbeat, with 52 percent of CEOs anticipating an improvement in conditions in the months ahead. CEOs are again rating conditions in China as unfavorable and remain pessimistic regarding India and Brazil.
Industrial production increased 0.7 percent in March after having advanced 1.2 percent in February. The rise in February was higher than previously reported primarily because of stronger gains for durable goods manufacturing and for mining. For the first quarter as a whole, industrial production moved up at an annual rate of 4.4 percent, just slightly slower than in the fourth quarter of 2013. At 103.2 percent of its 2007 average, total industrial production in March was 3.8 percent above its level of a year earlier.
Is the economy heating up and will the Federal Reserve become more aggressive with the taper—and with that, potentially stall the housing market recovery? The Fed and its new Chair, Janet Yellen, have to read conflicting signals. Economic slack is disappearing based on 3 labor market indicators of temporary help services hiring, firms unable to fill job openings and a 4-week moving average of initial unemployment claims. But then again, another measure of economic slack—the U6 and U3 gap—remains well above levels experienced before the recession. (The measure U3 is the standard measure of the unemployment rate (lowered by falling labor participation rates), and U6 is total unemployed that includes those employed part-time for economic reasons, i.e., not part-time by choice.)
Drivers of Change
Builder confidence has been in a holding pattern. Builder confidence in the market for newly built, single-family homes rose one point to 47 in April from a downwardly revised March reading of 46 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). Generally speaking, as the spring homebuying season gets into full swing and demand increases, builders are expecting sales prospects to improve in the months ahead. There are headwinds still, including ongoing tight credit conditions for homebuyers and the fact that builders in many markets are facing a limited availability of lots and labor.
The HMI three-month moving average was down in all four regions. The Midwest posted a four-point decline to 49.
Economic activity in the manufacturing sector expanded in March for the 10th consecutive month, and the overall economy grew for the 58th consecutive month. The March PMI® registered 53.7 percent, an increase of 0.5 percentage point from February's reading of 53.2 percent. The New Orders Index registered 55.1 percent, an increase of 0.6 percentage point from February's reading of 54.5 percent. The Production Index registered 55.9 percent, a substantial increase of 7.7 percentage points compared to February's reading of 48.2 percent. Several comments from the panel reflect favorable demand and good business conditions, with some lingering concerns about the particularly adverse weather conditions across the country.
The auto component of the LII declined a tad from last month, by 0.1 percent. That said, there were 1.5 million light-vehicle sales in the U.S. in March, marking an increase of 28.8 percent from February and an increase of 5.6 percent over March 2013. The March seasonally adjusted annual rate (SAAR) for light-vehicle sales was 16.3 million. This was the first month of the year to record a SAAR value that was at least 16.0 million.
The transportation and logistics component of the LII, the Dow Jones Transportation Average, bounced back by 3.0 percent in March.
- As with last month, the interest rate spread was 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