Leading Index Reports 'Robust Rise'

Posted: Updated:

The Indiana Business Research Center says a "banner year" so far for automakers has resulted in an increase in September's Leading Index for Indiana." The center says encouraging housing numbers also factored into the rise.

September 22, 2014

News Release

Bloomington, Ind. -- Driven by good news in the housing and auto sectors, the Indiana University Kelley School of Business' Leading Index for Indiana made solid progress this month with a reading of 102.0, up from a revised August reading of 101.5.

All the components of the index contributed to the robust rise. Of particular note is homebuilders' sentiment, which rose to its highest reading since November 2005.

"If trends continue in the auto sector, this looks to be a banner year for automakers," said Timothy Slaper, research director of the Indiana Business Research Center in the Kelley School, which produces the monthly index.

There were 1.6 million light-vehicle sales in August, up 10.5 percent from July 2014 and better than August 2013 by 5.4 percent. The August 2014 seasonally adjusted annual rate for light-vehicle sales was 17.5 million, a first for this year.

But Slaper buffered the good news with caution.

"Based on Gallup's U.S. Economic Confidence Index and the Small Business Optimism Index, sentiment for consumers and small business has hit a flat patch -- in essence, taking a wait-and-see posture," he said. "Perhaps the average consumer and small business owner are finding it hard to hope for the best."

Drivers of change

Builders in many locations across the country reported improving buyer interest and increased traffic, which translated in a 4-point jump in the National Association of Home Builders/Wells Fargo Housing Market Index. Just the same, the NAHB notes that builders are still not seeing much activity from first-time homebuyers.

The Institute for Supply Management's Purchasing Managers Index indicates that the manufacturing sector expanded in August for the 15th consecutive month. The PMI rose by 1.9 percentage points from July's reading of 57.1 percent. This month's PMI reflects the highest reading since March 2011.

Unfilled orders for automotive bodies and parts, which is the auto component of the index, rose only by 0.2 percent. "That said, auto sales are on a tear," Slaper said.

The transportation and logistics component of the LII, the Dow Jones Transportation Average, increased a convincing 3.2 percent.

Next month will be the last regularly released edition of the LII. This is because the interest rate component of the index relies on Federal Reserve policy, which has been unchanged. The yield spreads that once foretold changes in economic growth are less reliable.

About the Leading Index for Indiana

The Indiana Business Research Center in the Kelley School of Business, with offices on Indiana University's Bloomington and Indianapolis campuses, produces the monthly index. The 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 indexes that are national in scope, the LII uses national-level data for key sectors that are important to the Indiana economy. The reason the LII uses national level data is because national data are timelier than state-level data.

IU Bloomington is the flagship residential, research-intensive campus of Indiana University. Its academic excellence is grounded in the humanities, arts and sciences, and a range of highly ranked professional programs. Founded in 1820, the campus serves more than 42,000 undergraduate and graduate students pursuing degrees in more than 300 disciplines. Widely recognized for its global and international programs, outstanding technology and historic limestone campus, IU Bloomington serves as a global gateway for students and faculty members pursuing issues of worldwide significance.

Source: Indiana University