Concerns about a federal budget deadline and the rocky rollout of the Affordable Care Act appear to be impacting the Leading Index for Indiana. Indiana Business Research center Director of Economic Analysis Tim Slaper says the index is unchanged this month as policymakers in Washington focus on problems with the health care law while facing a January 15 budget deadline. November 21, 2013

News Release

BLOOMINGTON, Ind. — The Leading Index for Indiana remained unchanged in November from a revised reading of 101.7 a month ago, perhaps reflecting consumers' concerns about an economy affected by continued uncertainty about the debt ceiling and health care reform.

Like in previous months, the movements of the LII components were mixed. Homebuilder sentiment, souring somewhat the last couple of months, held steady. The auto sector component was marginally negative. The general manufacturing and transportation components were positive.

“Perhaps the LII is holding its breath this month in anticipation that political and economic policy watchers — and by extension business owners and securities markets — will hold their collective breaths in early 2014,” said Timothy Slaper, director of economic analysis at the Indiana Business Research Center in Indiana University's Kelley School of Business. The IBRC produces the monthly index.

“In less than three months, Washington will have to act on the debt ceiling, federal shutdowns and the federal budget, and that may give businesses and consumers cause to pause,” Slaper added. “The next few months are anybody’s guess given that the antics in Washington earlier this fall had a trifling economic impact — the stock market just keeps rising — but on the other hand, consumer misgivings about a murky future may well dim the brightness on the Christmas spending season.”

Slaper cited the “complete evaporation of confidence in Washington by the average citizen,” created by the continuing political handwringing over Obamacare and the business uncertainty generated by the Afforable Care Act rollout.

The Thomson Reuters/University of Michigan preliminary index of consumer sentiment this month continued to decline, falling from a 75.2 to 72.0.

“Analysts had expected the index to rebound in November. This reading is near a two-year low as lower-income households worried about their job prospects and financial outlooks,” Slaper said. “Negative views of the government continue to linger. Lower-income households in particular worried about their future financial state, according to the survey. That was a contrast to richer households — those with incomes above $75,000 — who seemed more optimistic as stock prices increases boosted net wealth gains.”

Small business optimism dropped from 93.9 to 91.6, according to National Federation of Independent Business. Sixty-eight percent of business owners felt that the current period is a bad time to expand.

“The new budget deadline of Jan. 15 is approaching quickly, and Congress appears to be solely focused on the train wreck of a health care law. There are only two chances that anything else productive gets done in Washington over the next few months: fat and slim,” Slaper said.

Drivers of change

Homebuilder confidence was unchanged in September, reflecting continued political uncertainty in Washington and concern about mortgage rates, according to the National Association of Home Builders/Wells Fargo Housing Market Index.

“The fact that builder confidence remains above 50 is encouraging, especially if one considers the unresolved debt and federal budget issues cause builders and consumers to remain on the sideline,” Slaper said.

The Institute for Supply Management’s Purchasing Managers Index moved up from 56.2 to 56.4. Comments from the survey participants were generally positive and optimistic. This month’s PMI indicates growth for the 53rd consecutive month in the overall economy and indicates expansion in the manufacturing sector for the fifth consecutive month.

After hitting an important sales marker in August — 16 million units on a seasonally adjusted annual rate — U.S. automobile sales slipped a bit in September and October to 15.2 million units (in both months, SAAR). There were 1.2 million light-vehicle sales, in the United States in October. This marked an increase of 6 percent from September and an increase of 10.5 percent over October 2012. The October 2013 year-to-date figures bring total light-vehicle sales to 12.9 million, up 8.3 percent from a year ago. The value of unfilled orders for auto bodies and parts decreased a half percentage point.

The Dow Jones Transportation Average, the transportation and logistics component of the LII, rose again, this time almost 6 percent over the course of the month.

The yield on 10-year U.S. Treasuries fell about 20 basis points in October.

“Good news for the fragile housing recovery and evidence that quantitative easing is alive and well,” Slaper said. “Many analysts think that Janet Yellen, President Obama’s nominee for Fed chair, will be even more dovish than the current Fed chair, maintaining Fed’s policy of asset purchases to expand the money supply, QE, well into the foreseeable future. As one noted several months ago, any hint or whisper that QE may be ramped down makes financial markets nervous.”

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.Source: Indiana University

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