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News Release

Last modified: Monday, November 30, 2009

Leading Index for Indiana edges up for October, but is seen as anemic improvement

FOR IMMEDIATE RELEASE
Nov. 30, 2009

BLOOMINGTON, Ind. -- The Leading Index for Indiana (LII) for October edged up from the month before, due largely to the relatively large uptick in the Purchasing Managers Index (PMI) and a rise in the value of unfilled orders in the auto sector.

Timothy Slaper, director of economic analysis at the Indiana Business Research Center and director of the index project, said additional evidence from the auto industry shows a sector still in the doldrums.

"While unfilled orders rose from September to October, the value of shipments dropped a notch," Slaper said. "Recent automobile sales forecasts for 2010 are rather bleak."

Industry experts forecast the expected number of vehicles to be sold in 2010 at 11.1 million units.

The September LII, initially unchanged based on preliminary data, was revised up slightly.

The LII is produced by the IBRC at Indiana University's Kelley School of Business, in order to help Hoosier businesses and governments better understand market conditions in the state.

"The anemic ascent of the LII and the recent announcement of small job losses in Indiana in October continue to present an ambiguous economic picture," Slaper added.

He noted that IU's Center for Econometric Modeling and Research recently forecast a "U" shaped economy recovery for Indiana. This forecast and the relatively large revision downward in the national Gross Domestic Product statistic "seem to indicate continued choppy seas."

"On the brighter side, the LII has made steady, if slow, upward progress since March," he said.

Drivers of Change

After a gentle crest of the Housing Market Index (HMI) in September, October's HMI dropped slightly.

"It appears that the expiration of the first-time home buyer tax credit at the end of November continued to weigh on the minds of home builders, even as the bill to extend and expand the home buyer tax credit was making its way through Congress," the LII summary said. "Many expect this incentive, that will expire on April 30, 2010, will help the unsteady recovery in home construction."

The Dow Jones Transportation Average (DJTA) declined slightly in October, reflecting the uncertainty associated with the strength of the economic recovery.

The Purchasing Manager Index (PMI) produced by the Institute of Supply Management (ISM) jumped in October after dipping a bit in September. The PMI reading indicates an expanding economy. The PMI has made relatively steady upward progress since January. That said, ISM's press release still reports that the economic rebound is soft in several sectors.

"The interest rate spread has a long history for indicating changes in the direction of the economy," Slaper said. "At present, this indicator is not showing signs of deteriorating economic conditions.

"Several influences may make the interest rate spread an unreliable indicator at present," he continued. "The Federal Reserve has had an aggressive money policy that is keeping the federal funds rate at close to zero, and there are concerns about a weakening dollar and future inflation."

The auto sector component of the index registered an increase in October. The September value was revised up and the percentage change from August to September improved from being slightly negative to being slightly positive. Seasonally adjusted value of shipments, on the other hand, fell in October.

Year to date, shipments of motor vehicles and parts are off 27.8 percent compared to January through October of 2008. As noted above, auto industry analysts are predicting 2010 sales will total 11.1 million units. While this sales volume will exceed expected sales for 2009 by about 7.8 percent, it is far below sales volume of over 16 million units per year in 2006 and 2007.

About the Leading Index for Indiana
The LII is designed to reflect the unique structure of the Indiana economy and uses more timely national level data for key sectors that are important to 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 for economic activity.

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