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Timothy Slaper
Indiana Business Research Center

George Vlahakis
IU Communications

Last modified: Thursday, April 19, 2012

IU Kelley School's Leading Index for Indiana reaches highest level since August 2008

April 19, 2012

BLOOMINGTON, Ind. -- Following a brief pause last month, the Leading Index for Indiana continued its ascent that began late last year with five straight months of steady increases. At 98.2, the LII is up 0.2 points this month and at its highest level since August 2008.

Leading Index April 2011 to April 2012

Leading Index for Indiana April 2011 to April 2012

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However, the picture continues to be mixed, said Timothy Slaper, director of economic analysis at the Indiana Business Research Center in Indiana University's Kelley School of Business, which compiles the monthly report.

The Ceridian-UCLA Pulse of Commerce Index, another economic indicator, also rose 0.3 percent in March, following a 0.7 percent increase in February. That said, the PCI is still down 2.2 percent from a year ago. This lackluster growth is likely attributable to the recent spike in oil prices, as the PCI tracks real-time diesel fuel consumption for over-the-road trucking.

The Thomson Reuters/University of Michigan overall index of consumer sentiment continued to disappoint. Its preliminary April index fell to 75.7 from its March value of 76.2. Bloomberg Businessweek reported that economists were expecting the index to remain unchanged, suggesting consumer sentiment may be worse than previously thought.

Earlier this month, the Chicago Federal Reserve reported that Midwest manufacturing increased a percentage point, with the auto, machinery and steel sectors posting improvements.

"As it has throughout the economic recovery, gradual and punctuated upward movement in the LII provides evidence of an economy struggling to reach takeoff velocity," Slaper said.

Drivers of change

Housing market confidence slipped this month. The National Association of Home Builders' Housing Market Index dropped from 28, its highest level since June 2007, to 25.

Tim Slaper

Timothy Slaper

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Slaper noted comments from National Association of Home Builders Chairman Barry Rutenberg, who observed consumers are still very hesitant to go forward with a purchase, despite a great interest among potential buyers in many markets.

The Institute for Supply Management's Purchasing Managers Index rose in March, reclaiming some of the lost territory from February. The index increased from 52.4 to 53.4.

"As the index remains above 50, manufacturing activity continues to grow and most signs look positive," Slaper said. "In fact, the comments from survey respondents showed optimistic expectations from every industry except, interestingly, computer and electronic products."

Auto sales have shown some positive signs over the past few months. March car sales were at a seasonally adjusted annual rate of 14.3 million units. Year-to-date, car sales are up nearly 20 percent from the same period last year. Unfilled orders for motor vehicle bodies, parts and trailers rose slightly in February.

The transportation and logistics component of the index -- the Dow Jones Transportation Average -- also recovered some lost ground in March, rising from 5,153 to 5,253, an increase of almost 2 percent.

The interest rate on 10-year Treasuries crawled a bit higher in March, rising from 1.97 percent to 2.17 percent. The Fed Funds rate remained near zero as part of the Fed's stated policy, so the interest rate spread did not change very much.

"Given excess production capacity, generally low inflationary pressures and the delicate state of the recovery, the Fed has announced that its policy of maintaining low interest rates will remain in effect for an extended period," Slaper said.

About the Leading Index for Indiana
The LII, developed by the Indiana Business Research Center, is designed to reflect the unique structure of the Indiana economy. It is a predictive tool that signals changes in the direction of the economy several months before the economy has changed. In contrast to economic forecasts, which use sophisticated statistical models to foretell particular levels for a wide variety of economic activities and outcomes in the future, a leading index is a simple construct that indicates a general direction of future economic activity expected in the next five to six months.