The Indiana Business Research Center says the Leading Index for Indiana reported a “nearly indiscernible” increase in March after tumbling the previous month. The analysis also shows economic uncertainty continues to lead small businesses to be reluctant to spend and hire.

March 25, 2014

News Release

Bloomington, Ind. — After a huge slide last month, the Leading Index for Indiana warmed slightly in March and abated concerns about continued economic decline, for now.

The LII didn't regain any territory it lost in February and increased by a nearly indiscernible tenth of a percentage point in March to a reading of 101.1.

“The components of the index improved, but unconvincingly,” said Timothy Slaper, research director of the Indiana Business Research Center in Indiana University's Kelley School of Business, which produces the monthly index.

“Home builders, while not talked off the ledge — the HMI (Housing Market Index) dropped a whopping 10 points last month — were at least talked out of jumping. The one-point improvement in homebuilder sentiment did little to reverse last month's plummet,” Slaper added.

The Institute for Supply Management index rose nearly two points in March, reclaiming more than a third of February’s drop.

Economic activity in the manufacturing sector continues to expand, as it has for the last nine straight months. The overall economy has been growing for 57 consecutive months, the nation's supply executives said in the latest Manufacturing ISM Report on Business.

Small business optimism continues its hibernation, with the latest National Federation of Independent Business Index dropping 2.7 points to 91.4, a reading that historically has been associated with recessions and periods of subpar growth.

“As the NFIB explains it, uncertainty is a major cause of reluctance to spend and hire among small firms,” Slaper said. “Record low counts of small firms indicate that the current period is a good time to expand. More firms are reducing inventory than adding to it, even in a growing economy, and more firms expect a deteriorating economy than an improving one.”

In NFIB’s Problems and Priorities survey, uncertainty about the economy and government policy both rank in the top five most severe problems facing small business owners.

“You don’t bet your money on a future you cannot see clearly,” Slaper said.

Despite the frigid weather, car sales held up; although they were not quite as good as last year. There were 1.2 million light-vehicle sales in February 2014, marking an increase of 17.9 percent from January 2014 but a decline of 0.1 percent over February 2013.

Barring a few brands, namely Fiat Chrysler's Jeep brand, most automakers saw sales decline. The February 2014 seasonally adjusted annual rate for light-vehicle sales is 15.3 million. February 2014 YTD figures bring total light-vehicle sales to 2.2 million, down 1.5 percent from a year ago.

Drivers of change

Builder confidence in the market for newly built, single-family homes as measured by the National Association of Home Builders/Wells Fargo Housing Market Index rose 1 point to 47.

“By and large, the March HMI mirrors last month’s gloom,” Slaper said. “Builders continued to be affected by poor weather and difficulties in finding lots and labor.”

Slaper acknowledged comments by NAHB Chief Economist David Crowe about builders' concerns over meeting the demand for the spring buying season. The index’s components were mixed: The component gauging current sales conditions rose 1 point to 52; the component measuring buyer traffic increased 2 points to 33; but the component gauging sales expectations in the next six months fell 1 point to 53.

As noted above, economic activity in the manufacturing sector expanded in February. The New Orders Index registered 54.5 percent, an increase of 3.3 percentage points from January's reading of 51.2 percent. As in January, several comments from the panel mention adverse weather conditions as a factor affecting their businesses in February. Other comments reflect optimism in terms of demand and growth in the near term.

The auto component of the LII rose slightly — 0.2 percent — from last month.

After a brutal January, the transportation and logistics component of the LII, the Dow Jones Transportation Average, eked out a small gain of 0.8 percent in February.

Slaper said there continues to be no bad news on the interest rate front; the interest rate spread was essentially unchanged. That said, the Federal Reserve monetary policy undercuts the interest rate spread component of the LII from being a useful indicator to forecast future economy activity, as has been mentioned many times before.

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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