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 »

LII Value	97.5
Change from Previous Month	0.4%
Warning Sign	No

Index for December 2011

The LII points to a recovery that is finally gaining traction, hitting a new post-crisis high in December.

View data | Downloadable 13-month graph

Note: Hover over the lower graph and move the slider to change the time period displayed.

The LII jumped from 97.1 to 97.5—its highest level since September 2008.  December was also the second month in a row in which all five components of the LII contributed positively to the index. While there is still considerable economic uncertainty, and the recovery is still fragile, there is reason for optimism that Indiana will see modest economic growth in 2012.

The Ceridian-UCLA Pulse of Commerce Index™ (PCI) continued to inch forward positively as well.  The PCI increased 0.2 percent in December, adding to its 0.1 percent increase in November. While the upward movement in the PCI is gradual, it is positive. The index’s authors, however, hasten to note that the PCI remains below its 2011 highs.

While far from frisky, the auto sector is becoming more energetic. December auto sales were 13.5 million units at a seasonally adjusted annual rate and 2011 sales posted a 10.2 percent gain over the previous year. New vehicle floor traffic in early January showed a 12 percent improvement over January sales last year, according to CNW Research. In addition, CNW Research’s “Jitters Index” declined for the fourth consecutive month. Sub-prime auto loan approvals were up substantially from last January, signaling that credit is continuing to ease.

Drivers of Change

• Confidence in the housing market rose for the fourth consecutive month in January, finally surpassing its level from May of 2010 when the home-buyer tax credit ended. The National Association of Home Builders’ Housing Market Index (HMI) jumped 4 points this month, from 21 to 25, its highest value since June 2007. This is a positive sign that the housing market may foresee better news in the coming year. In addition, all four regional indexes moved up in January.

  Given the four consecutive months of improvement, the normally cautious NAHB Chairman Bob Nielsen offered some optimistic notes: “This good news comes on the heels of several months of gains in single-family housing starts and sales, and is yet another indication of the gradual but steady improvement that is beginning to take hold.” Optimism aside, Nielsen suggests that the housing recovery is still fragile, and he warns policy makers to “take every precaution to avoid derailing this nascent recovery.”

• The Institute for Supply Management’s Purchasing Managers Index (PMI) rose again in December, increasing from 52.7 to 53.9, its highest value since June 2011. This is the PMI’s second consecutive monthly increase and telegraphs that the manufacturing sector has grown steadily, if slowly, for 28 consecutive months.

• Unfilled orders for motor vehicles and parts—the LII indicator for the auto sector—increased in November. On the other hand, the October number was revised downward significantly, so that unfilled orders remain below September’s post-recession high.

• The Dow Jones Transportation Average notched another consecutive, if small, gain in December, rising from 4946 to 5020. The index is still well below April’s post-recession high of 5515, however.

• Interest rates on 10-year Treasuries edged lower in December, decreasing from 2.01 percent to 1.98 percent.  As a result, the interest rate spread decreased, as the Fed Funds rate held near 0 percent.  This minor change still put some upward pressure on the LII. There is little reason to think that this indicator will change significantly in the coming months. Given excess production capacity, generally low inflationary pressures and delicate state of the recovery, the Fed is expected to maintain its current monetary policy.

Source: Indiana Business Research Center, Indiana University Kelley School of Business