State Leading Index Signals Slow but Continued Economic Expansion

December 11, 2012 | Print Print

 

Often times, the best question we can ask is not “where have we been?” but “where are we headed?” With a variety of economic indicators, it’s usually not clear which data to follow. Different data can provide different stories, yet simultaneously viewing these data points can help us make predictions regarding Florida’s direction in the business cycle. The Federal Reserve Bank of Philadelphia’s State Leading Index does just that, by creating a composite index using state level and national level leading indicators. Leading indicators tend to fluctuate with the overall economy, but these fluctuations occur before changes in the overall economy allowing for forecasts. Current and historical values of state initial unemployment claims, state housing permits, delivery times from the Institute of Supply Management’s manufacturing survey and interest rate spreads between 10-year and 3-year Treasury bills are used to forecast future economic growth or contraction. The State Leading Index provides a 6-month forecast of economic activity in Florida. A positive percentage signals continued growth and progress, while a negative value can signal a coming economic downturn.

In October, the State Level Index reported a value of 0.92%; suggesting a six-month growth rate for Florida of around 0.92. Using a three-month moving average, Florida’s forecasted growth drops down to 0.82 percent, as Augusts’ predicted value came in at 0.62%. Dating back to 2010, the State Leading Index has trended between 0.5% and 1%. When compared to the U.S., Florida’s forecasted growth rate is approximately 0.3 percentage points lower than that of the nation’s. The U.S. one month and three month-moving average forecasted growth rates equaled approximately 1.25 and 1.24 percent respectively, with an average growth rate of 1.35 percent since 2010. In all three of these comparisons we see that while Florida’s Leading index suggests positive growth, it is likely to remain below the national growth trend.

For more information, please visit www.TheFloridaScorecard.com.

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