Leading Index Review: February 2014 Philly Fed Leading Index Growth Again Weakens

April 3rd, 2014
in econ_news, syndication

Econintersect: A positive index number projects positive economic growth for the next 6 months. The February 2014 forecast (released today) growth is 1.1% over the next 6 months. The rate of growth again is not as good as previous months. A review of all major leading indicators follows.

Follow up:

A positive number indicates growth.

Per the Philly Fed:

The Federal Reserve Bank of Philadelphia has released the leading indexes for the 50 states for February 2014. The indexes are a six-month forecast of the state coincident indexes (also released by the Bank). Forty-three state coincident indexes are projected to grow over the next six months, while seven are projected to decrease. For comparison purposes, the Philadelphia Fed has also developed a similar leading index for its U.S. coincident index, which is projected to grow 1.1 percent over the next six months.

[click on graphic to enlarge]

 

This index has been noisy, but remains above 1%.

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. 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.

Chemical Activity Barometer (CAB) – The CAB is an exception to the other leading indices as it leads the economy by two to fourteen months, with an average lead of eight months. The CAB is a composite index which comprises indicators drawn from a range of chemicals and sectors. Its relatively new index has been remarkably accurate when the data has been back-fitted, however – its real time performance is unknown – you can read more here.  A value above zero is suggesting the economy is expanding. Econintersect's analysis of this index is [here].

/images/z chemical_activity_barometer.png

ECRI's WLI has been predicting economic expansion for over a year. Econintersect's review of this index is [here].

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. Ths index is in positive territory and improving - implying any recession is months away. Econintersect's review of this index is [here].

 

 

Nonfinancial leverage subindex of the National Financial Conditions Index – a weekly index produced by the Chicago Fed signals both the onset and duration of financial crises and their accompanying recessions. Econintersect has some doubt about the viability of this index as its real time performance has been subject to significant backward revision. In other words the backward revision is so large that one really does not know what the current situation is. The chart below shows the current index values, and a recession can occur months to years following the dotted line below crossing above the zero line.



Leading Indicators Bottom Line – no recession in the next six months:

  • Chemical Activity Barometer (CAB) is in expansion territory, but growth is flat.
  • ECRI’s WLI remains positive – and growth is currently marginally accelerating.
  • The Conference Board (LEI) is indicating modest growth over the next 6 months.
  • The Philly Fed’s Leading Index is indicating weak economic growth.
  • The Chicago Fed’s Nonfinancial leverage subindex is not close to warning a recession could be near.

 

 

Steven Hansen

 









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