October 2012 Philly Fed Leading Index Is Projecting Positive Economic Growth

December 4th, 2012
in econ_news, syndication

Econintersect: A positive index number projects positive economic growth for the next 6 months. The October 2012 forecast growth is 1.25% versus September 2012's downwardly revised 1.17%.  A positive number indicates growth.

Follow up:

Per the Philly Fed:

The Federal Reserve Bank of Philadelphia has released the leading indexes for the 50 states for October 2012. The indexes are a six-month forecast of the state coincident indexes (also released by the Bank). Forty-seven state coincident indexes are projected to grow over the next six months, while three are projected to decrease. For comparison purposes, the Philadelphia Fed has also developed a similar leading index for our U.S. coincident index, which is projected to grow 1.2 percent over the next six months.

This index has been degrading (showing less good growth) for over one year.  Index Readings for 2012:

2012-01-01 1.54
2012-02-01 1.37
2012-03-01 1.51
2012-04-01 1.41
2012-05-01 1.45
2012-06-01 1.28
2012-07-01 1.25
2012-08-01 1.29
2012-09-01 1.17
2012-10-01 1.25

United States from the Philadelphia Fed - This index is the super index for all the state indices.

The leading index for each state predicts the six-month growth rate of the state's coincident index. In addition to the coincident index, the models include other variables that lead the economy: state-level housing permits (1 to 4 units), state initial unemployment insurance claims, delivery times from the Institute for Supply Management (ISM) manufacturing survey, and the interest rate spread between the 10-year Treasury bond and the 3-month Treasury bill.

This index is subject to backward revision.

The Other Leading Indicators

The leading indicators are to a large extent monetary based (in the case of ECRI it is a knowledgeable guess as the makeup of this index is proprietary). Econintersect's primary worry in using monetary based methodologies to forecast the economy is the current extraordinary monetary policy which may (or may not) be affecting historical relationships. This will only be known at some point in the future. Econintersect does not use any portion of the leading indicators in its economic index. All leading indices in this post look ahead six months - and are all subject to backward revision. ECRI's Weekly Leading Index (WLI) - ECRI has been strongly arguing for almost a year that a recession is coming. In July, they stated the country is currently in a recession. ECRI’s WLI index value is now solidly above zero which according to definition means the economy six month from today will be better than today. A positive number shows an expansion of the business economy, while a negative number is contraction. This index has been on an improving trend most of 2012.

Current ECRI WLI Index

The Conference Board's Leading Economic Indicator (LEI) - Looking at the historical relationships, this index's 3 month rate of change must be in negative territory many months (6 or more) before a recession occurred. Over the last several months, this index's rate of change has been jumping in and out of negative territory - but is again in positive territory implying any recession is months away.


Steven Hansen


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