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Wisconsin Leading Indicator Index: Development and Evolution

Wisconsin Leading Indicator Index: Development and Evolution. Emily Camfield Wisconsin Department of Revenue November 6, 2009. Development. Goal: Develop an index of leading indicators specific to the Wisconsin economy Data requirements: Base index on data that Are reliable

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Wisconsin Leading Indicator Index: Development and Evolution

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  1. Wisconsin Leading Indicator Index:Development and Evolution Emily Camfield Wisconsin Department of Revenue November 6, 2009

  2. Development • Goal: Develop an index of leading indicators specific to the Wisconsin economy • Data requirements: Base index on data that • Are reliable • Can be updated monthly • Lead economic activity

  3. Challenges • Finding enough Wisconsin specific variables that can be used in the index, meeting the desired requirements • Benchmarking – what data series to use to gauge troughs and peaks in the Wisconsin economy?

  4. Inspiration: Conference Board National Index of Leading Indicators Ten components: • Average weekly hours worked by manufacturing workers • Average weekly initial claims for unemployment insurance • Amount of manufacturers' new orders for consumer goods and materials • Amount of manufacturers' new orders for capital goods unrelated to defense • Vendor performance, slower deliveries diffusion index • Number of new building permits for residential buildings • The S&P 500 stock index • Inflation-adjusted money supply (M2) • Spread between long and short interest rates (i.e. the yield curve) • Consumer expectations

  5. Inspiration • Iowa’s leading indicator: • Developed by their state revenue office several years ago • Uses state components, similar to those in the national index • Uses a 12-month moving average for all components • More info at: http://www.iowa.gov/tax/taxlaw/ILIISept09.pdf

  6. Other State Indicators • Texas – published by the Dallas Federal Reserve • Philadelphia Federal Reserve – publishes a leading indicator for the states in its district (DE, NJ, PA) • Oregon – published by the Oregon Office of Economic Analysis

  7. Leading Indicator, Take 1 • Components: • Benchmark series (to compare to Leading Indicator Index): • Total nonfarm employment, 12-month moving average, seasonally adjusted. • Other series considered: • Phil Fed Coincident Indicator for Wisconsin • Wisconsin GDP

  8. Components • Wisconsin Specific: • Wisconsin housing permits • Average weekly manufacturing hours • Wisconsin Trade-weighted value of the Dollar • Employment in Professional & Business Services • Diesel Fuel Consumption • Wisconsin withholding tax revenues • Average monthly Initial Claims • National: • Yield Spread • S&P 500 stock market index

  9. Components Not Used • Sales tax revenues • PMI new orders index • University of Michigan/Reuters Consumer Sentiment Index • Agricultural Prices in Wisconsin • Corn • Dairy

  10. Leading IndicatorPrior to 2009

  11. Six-Month Moving Average

  12. Diffusion Index

  13. Mid-year, Employment Started to Flatten Out

  14. But the Leading Indicator Continued to Decline

  15. Revisions to the Index • Changed the benchmark series (total nonfarm employment) from a 12 to a 3-month moving average • Converted most components of the index from a 12 to a 3-month moving average • Problem: not all data seasonally adjusted • Problem 2: timeliness of data

  16. Revised Index Bottomed Out in April 2009

  17. Wisconsin Housing Permits Source: U.S. Census Bureau

  18. Average Manufacturing Hours Source: U.S. Bureau of Labor Statistics

  19. Wisconsin Trade-Weighted Value of the Dollar Source: Wisconsin Department of Revenue

  20. WI Emp in Prof and Business Services Source: Wisconsin Department of Workforce Development

  21. Diesel Fuel Consumption Source: Wisconsin Department of Revenue

  22. Real Withholding Collections Source: Wisconsin Department of Revenue

  23. Initial Unemployment Ins. Claims Source: Wisconsin Department of Workforce Development

  24. S&P 500 Index Source: Standard & Poor’s

  25. Yield Curve Source: Federal Reserve Board

  26. Revised IndexUsing Three-Month Moving Averages

  27. 6-Month Annualized ChangeUsing Revised Index

  28. Diffusion IndexUsing Revised Index

  29. Questions/Comments • Visit us on the web: http://www.revenue.wi.gov/report/e.html#economy • My contact info: emily.camfield@revenue.wi.gov 608-261-5174

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