The Indiana Business Research Center says the state's economy may be shaking off the “big chill” of the first quarter of 2014. The center says an improving employment picture across the state led to an increase in August's Leading Index for Indiana.

August 22, 2014

News Release

Bloomington, Ind. — The Indiana University Kelley School of Business' Leading Index for Indiana saw a significant rise in August, from a revised July reading of 101.2 to 101.6, driven in part by an improving employment picture across the state.

“The Leading Index for Indiana made up almost all of the ground it lost during the 'big chill' of the first quarter of 2014,” said Timothy Slaper, research director of the Indiana Business Research Center in the Kelley School, which produces the monthly index.

The index rose due to increases in the LII components for manufacturing, the auto sector and home building. The transportation component took a small dip.

“The encouraging employment news helps to explain the boost in the home builders’ optimism, because builders are seeing a noticeable increase in the number of serious buyers who are, in turn, more upbeat about their job prospects,” Slaper said.

Auto sales remain encouraging, with July 2014 sales at 16.4 million at a seasonally adjusted annual rate.

The National Association of Home Builders/Wells Fargo Housing Market Index for August rose two points to 55. This is the third consecutive rise and brings the HMI to its highest level since January.

Based on the Institute of Supply Management’s Purchasing Manager’s Index, economic activity in the manufacturing sector expanded for the 14th consecutive month in July. The July PMI registered 57.1 percent, an increase of 1.8 percentage points from June's reading of 55.3 percent.

The auto component of the LII — unfilled orders for automobile bodies and parts — also rose, by 0.7 percent.

The transportation and logistics component of the LII, the Dow Jones Transportation Average, took a breather in July, dipping 0.7 percent.

The interest rate spread was virtually unchanged.

October edition of the Leading Index for Indiana to be the last

“As mentioned ad nauseam, the interest rate component of the LII has been made useless due to Federal Reserve policy,” Slaper said. “As also stated, although less frequently, the yield spreads that once foretold of changes in economic growth have proven to be less reliable.

“A new study by Wells Fargo Securities has documented that, post Great Recession, the relationship between the interest rate spread and GDP growth is questionable at best,” Slaper said. “While the interest rate spread is only one of five components of the LII, the tenuous relationship in this component would require a rethinking and reconfiguring of the design of the LII.”

As a result, the IBRC is announcing that the October Leading Index for Indiana, which will be released Oct. 21, will be the last edition of the index.

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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