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Wisconsin Leading Indicator Index:Development and Evolution
Emily Camfield
Wisconsin Department of Revenue
November 6, 2009
2
Development
• Goal: Develop an index of leading indicators specific to the Wisconsin economy
• Data requirements: Base index on data that – Are reliable – Can be updated monthly– Lead economic activity
3
Challenges
• Finding enough Wisconsin specific variables that can be used in the index, meeting the desired requirements
• Benchmarking – what data series to use to gauge troughs and peaks in the Wisconsin economy?
4
Inspiration: Conference Board National Index of Leading
IndicatorsTen components:
– Average weekly hours worked by manufacturing workers – Average weekly initial claims for unemployment insurance – Amount of manufacturers' new orders for consumer goods and
materials – Amount of manufacturers' new orders for capital goods unrelated to
defense – Vendor performance, slower deliveries diffusion index – Number of new building permits for residential buildings – The S&P 500 stock index – Inflation-adjusted money supply (M2) – Spread between long and short interest rates (i.e. the yield curve) – Consumer expectations
5
Inspiration
• Iowa’s leading indicator: – Developed by their state revenue office
several years ago– Uses state components, similar to those in the
national index– Uses a 12-month moving average for all
components – More info at:
http://www.iowa.gov/tax/taxlaw/ILIISept09.pdf
6
Other State Indicators
• Texas – published by the Dallas Federal Reserve
• Philadelphia Federal Reserve – publishes a leading indicator for the states in its district (DE, NJ, PA)
• Oregon – published by the Oregon Office of Economic Analysis
7
Leading Indicator, Take 1
• Components:– Benchmark series (to compare to Leading
Indicator Index): • Total nonfarm employment, 12-month moving
average, seasonally adjusted.
– Other series considered: • Phil Fed Coincident Indicator for Wisconsin• Wisconsin GDP
8
Components• Wisconsin Specific:
– Wisconsin housing permits– Average weekly manufacturing hours– Wisconsin Trade-weighted value of the Dollar– Employment in Professional & Business Services– Diesel Fuel Consumption– Wisconsin withholding tax revenues– Average monthly Initial Claims
• National: – Yield Spread– S&P 500 stock market index
9
Components Not Used
• Sales tax revenues
• PMI new orders index
• University of Michigan/Reuters Consumer Sentiment Index
• Agricultural Prices in Wisconsin– Corn– Dairy
10
Leading IndicatorPrior to 2009
114
116
118
120
122
124
126
99 00 01 02 03 04 05 06 07 08
Leading Indicator Index Employment Index
Inde
x 19
91=
100
11
Six-Month Moving Average
-6%
-4%
-2%
0%
2%
4%
99 00 01 02 03 04 05 06 07 08
Six Month Annualized Change
12
Diffusion Index
10
20
30
40
50
60
70
80
90
100
99 00 01 02 03 04 05 06 07 08
Diffusion Index
13
Mid-year, Employment Started to Flatten Out
2,730
2,740
2,750
2,760
2,770
2,780
2,790
2,800
2,810
2,820
2009Q1 2009Q2 2009Q3
Total Nonfarm Employment in Wisconsin
14
But the Leading Indicator Continued to Decline
112
113
114
115
116
117
118
2009Q1 2009Q2 2009Q3
Wisconsin Leading Indicator IndexJanuary - September 2009
15
Revisions to the Index
• Changed the benchmark series (total nonfarm employment) from a 12 to a 3-month moving average
• Converted most components of the index from a 12 to a 3-month moving average– Problem: not all data seasonally adjusted– Problem 2: timeliness of data
16
Revised Index Bottomed Out in April 2009
109.5
110.0
110.5
111.0
111.5
112.0
112.5
113.0
113.5
2009Q1 2009Q2 2009Q3
Wisconsin Leading Indicator IndexJanuary-September 2009
Using 3-month Moving Average
17
Wisconsin Housing Permits
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
00 01 02 03 04 05 06 07 08 09
Wisconsin Housing Permits3-Month Moving Average, Seasonally Adjusted
Tho
usan
ds
Source: U.S. Census Bureau
18
Average Manufacturing Hours
38.4
38.8
39.2
39.6
40.0
40.4
40.8
41.2
41.6
42.0
42.4
00 01 02 03 04 05 06 07 08 09
Average Weekly Manufacturing Hours3-Month Moving Average, Seasonally Adjusted
Source: U.S. Bureau of Labor Statistics
19
Wisconsin Trade-Weighted Value of the Dollar
80
90
100
110
120
130
00 01 02 03 04 05 06 07 08 09
WI Value of the $, Major trading partners, total exports
Source: Wisconsin Department of Revenue
20
WI Emp in Prof and Business Services
230
240
250
260
270
280
290
00 01 02 03 04 05 06 07 08 09
Wisconsin Employment in Professional and Business Services3-Month Moving Average, Seasonally Adjusted
Tho
usan
ds
Source: Wisconsin Department of Workforce Development
21
Diesel Fuel Consumption
52
56
60
64
68
72
00 01 02 03 04 05 06 07 08 09
Diesel Fuel Consumption3-Month Moving Average, Seasonally Adjusted
Mil
lion
s of
Gal
lons
Source: Wisconsin Department of Revenue
22
Real Withholding Collections
210
220
230
240
250
260
270
00 01 02 03 04 05 06 07 08 09
Real Withholding Collections3-Month Moving Average, Seasonally Adjusted
Tho
usan
ds
Source: Wisconsin Department of Revenue
23
Initial Unemployment Ins. Claims
8,000
12,000
16,000
20,000
24,000
28,000
00 01 02 03 04 05 06 07 08 09
Wisconsin Initial Unemployment Claims3-Month Moving Average, Seasonally Adjusted
Tho
usan
ds
Source: Wisconsin Department of Workforce Development
24
S&P 500 Index
700
800
900
1,000
1,100
1,200
1,300
1,400
1,500
1,600
00 01 02 03 04 05 06 07 08 09
S&P 500 Stock Market Index
Source: Standard & Poor’s
25
Yield Curve
-2%
-1%
0%
1%
2%
3%
4%
60 65 70 75 80 85 90 95 00 05
Yield Curve, 1960 - 2009
Source: Federal Reserve Board
26
Revised Index Using Three-Month Moving Averages
108
112
116
120
124
128
99 00 01 02 03 04 05 06 07 08 09
Leading Indicator Index Employment Index
Inde
x 19
91=
100
27
6-Month Annualized ChangeUsing Revised Index
-15.0%
-12.5%
-10.0%
-7.5%
-5.0%
-2.5%
0.0%
2.5%
5.0%
99 00 01 02 03 04 05 06 07 08 09
Six Month Annualized Change
28
Diffusion Index Using Revised Index
10
20
30
40
50
60
70
80
90
100
99 00 01 02 03 04 05 06 07 08 09
Diffusion Index
29
Questions/Comments
• Visit us on the web:
http://www.revenue.wi.gov/report/e.html#economy
• My contact info:
emily.camfield@revenue.wi.gov
608-261-5174
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