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![Page 1: Wisconsin Leading Indicator Index: Development and Evolution Emily Camfield Wisconsin Department of Revenue November 6, 2009.](https://reader030.fdocuments.in/reader030/viewer/2022032708/56649e8f5503460f94b92f06/html5/thumbnails/1.jpg)
Wisconsin Leading Indicator Index:Development and Evolution
Emily Camfield
Wisconsin Department of Revenue
November 6, 2009
![Page 2: Wisconsin Leading Indicator Index: Development and Evolution Emily Camfield Wisconsin Department of Revenue November 6, 2009.](https://reader030.fdocuments.in/reader030/viewer/2022032708/56649e8f5503460f94b92f06/html5/thumbnails/2.jpg)
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
![Page 3: Wisconsin Leading Indicator Index: Development and Evolution Emily Camfield Wisconsin Department of Revenue November 6, 2009.](https://reader030.fdocuments.in/reader030/viewer/2022032708/56649e8f5503460f94b92f06/html5/thumbnails/3.jpg)
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?
![Page 4: Wisconsin Leading Indicator Index: Development and Evolution Emily Camfield Wisconsin Department of Revenue November 6, 2009.](https://reader030.fdocuments.in/reader030/viewer/2022032708/56649e8f5503460f94b92f06/html5/thumbnails/4.jpg)
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Inspiration: Conference Board National Index of Leading
IndicatorsTen 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
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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
![Page 6: Wisconsin Leading Indicator Index: Development and Evolution Emily Camfield Wisconsin Department of Revenue November 6, 2009.](https://reader030.fdocuments.in/reader030/viewer/2022032708/56649e8f5503460f94b92f06/html5/thumbnails/6.jpg)
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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
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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
![Page 8: Wisconsin Leading Indicator Index: Development and Evolution Emily Camfield Wisconsin Department of Revenue November 6, 2009.](https://reader030.fdocuments.in/reader030/viewer/2022032708/56649e8f5503460f94b92f06/html5/thumbnails/8.jpg)
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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
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Components Not Used
• Sales tax revenues
• PMI new orders index
• University of Michigan/Reuters Consumer Sentiment Index
• Agricultural Prices in Wisconsin– Corn– Dairy
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Leading IndicatorPrior to 2009
114
116
118
120
122
124
126
99 00 01 02 03 04 05 06 07 08
Leading Indicator Index Employment Index
Inde
x 19
91=
100
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11
Six-Month Moving Average
-6%
-4%
-2%
0%
2%
4%
99 00 01 02 03 04 05 06 07 08
Six Month Annualized Change
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12
Diffusion Index
10
20
30
40
50
60
70
80
90
100
99 00 01 02 03 04 05 06 07 08
Diffusion Index
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13
Mid-year, Employment Started to Flatten Out
2,730
2,740
2,750
2,760
2,770
2,780
2,790
2,800
2,810
2,820
2009Q1 2009Q2 2009Q3
Total Nonfarm Employment in Wisconsin
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But the Leading Indicator Continued to Decline
112
113
114
115
116
117
118
2009Q1 2009Q2 2009Q3
Wisconsin Leading Indicator IndexJanuary - September 2009
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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
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16
Revised Index Bottomed Out in April 2009
109.5
110.0
110.5
111.0
111.5
112.0
112.5
113.0
113.5
2009Q1 2009Q2 2009Q3
Wisconsin Leading Indicator IndexJanuary-September 2009
Using 3-month Moving Average
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Wisconsin Housing Permits
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
00 01 02 03 04 05 06 07 08 09
Wisconsin Housing Permits3-Month Moving Average, Seasonally Adjusted
Tho
usan
ds
Source: U.S. Census Bureau
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Average Manufacturing Hours
38.4
38.8
39.2
39.6
40.0
40.4
40.8
41.2
41.6
42.0
42.4
00 01 02 03 04 05 06 07 08 09
Average Weekly Manufacturing Hours3-Month Moving Average, Seasonally Adjusted
Source: U.S. Bureau of Labor Statistics
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19
Wisconsin Trade-Weighted Value of the Dollar
80
90
100
110
120
130
00 01 02 03 04 05 06 07 08 09
WI Value of the $, Major trading partners, total exports
Source: Wisconsin Department of Revenue
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20
WI Emp in Prof and Business Services
230
240
250
260
270
280
290
00 01 02 03 04 05 06 07 08 09
Wisconsin Employment in Professional and Business Services3-Month Moving Average, Seasonally Adjusted
Tho
usan
ds
Source: Wisconsin Department of Workforce Development
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Diesel Fuel Consumption
52
56
60
64
68
72
00 01 02 03 04 05 06 07 08 09
Diesel Fuel Consumption3-Month Moving Average, Seasonally Adjusted
Mil
lion
s of
Gal
lons
Source: Wisconsin Department of Revenue
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22
Real Withholding Collections
210
220
230
240
250
260
270
00 01 02 03 04 05 06 07 08 09
Real Withholding Collections3-Month Moving Average, Seasonally Adjusted
Tho
usan
ds
Source: Wisconsin Department of Revenue
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23
Initial Unemployment Ins. Claims
8,000
12,000
16,000
20,000
24,000
28,000
00 01 02 03 04 05 06 07 08 09
Wisconsin Initial Unemployment Claims3-Month Moving Average, Seasonally Adjusted
Tho
usan
ds
Source: Wisconsin Department of Workforce Development
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24
S&P 500 Index
700
800
900
1,000
1,100
1,200
1,300
1,400
1,500
1,600
00 01 02 03 04 05 06 07 08 09
S&P 500 Stock Market Index
Source: Standard & Poor’s
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25
Yield Curve
-2%
-1%
0%
1%
2%
3%
4%
60 65 70 75 80 85 90 95 00 05
Yield Curve, 1960 - 2009
Source: Federal Reserve Board
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26
Revised Index Using Three-Month Moving Averages
108
112
116
120
124
128
99 00 01 02 03 04 05 06 07 08 09
Leading Indicator Index Employment Index
Inde
x 19
91=
100
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27
6-Month Annualized ChangeUsing Revised Index
-15.0%
-12.5%
-10.0%
-7.5%
-5.0%
-2.5%
0.0%
2.5%
5.0%
99 00 01 02 03 04 05 06 07 08 09
Six Month Annualized Change
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28
Diffusion Index Using Revised Index
10
20
30
40
50
60
70
80
90
100
99 00 01 02 03 04 05 06 07 08 09
Diffusion Index
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29
Questions/Comments
• Visit us on the web:
http://www.revenue.wi.gov/report/e.html#economy
• My contact info:
608-261-5174