Iowa Economic Indicators

This report is intended to help forecast the future direction of economic activity in the state of Iowa.

Iowa Leading Indicator Index

The Iowa Leading Indicator Index (ILII) is computed index derived from seven Iowa-specific economic indicators and one national indicator that helps predict turning points in Iowa employment.  A movement in the Iowa Leading Indicator Index for only one month does not produce a clear signal, rather it is necessary to consider the direction of the index over several consecutive months.  A contraction signal in the ILII is considered reliable when two conditions are met:
  1. The index declines by at least two percent over a six-month period (using an annualized rate); and
  2. A majority of the individual components decline over those six months (the six-month diffusion index less than 50.0).
The components include: agricultural futures profits index, average weekly manufacturing hours, average weekly unemployment claims, diesel fuel consumption, Iowa stock market index, national yield spread, new orders index, and residential building permits.
ILII: Six Month Overview
Note: The diffusion index measures the proportion of components that are rising based on the actual changes (not the standardized contributions to the ILII). Components experiencing increases greater than 0.05 percent are assigned a value of 1.0, components that experience changes less than an absolute value of 0.05 percent are assigned a value of 0.5, and components experiencing decreases greater than 0.05 percent are assigned a value of 0.0.

Non-Farm Employment Coincident Index

The Iowa Non-Farm Employment Coincident Index measures the change in non-seasonally adjusted, total non-farm employment in the state of Iowa.  Non-farm employment does not include farm workers, private household employees, or non-profit organization employees.
Changes are based on a 12-month moving average of employment and are computed as symmetric percentage changes.  The index is a representation of overall economic activity in Iowa.

ILII Components 

The components of the ILII include: agricultural futures profits index, average weekly manufacturing hours, average weekly unemployment claims, diesel fuel consumption, Iowa stock market index, national yield spread, new orders index, and residential building permits.  For all component series except for the yield spread and the Iowa stock market index, the values represent 12-month backward moving averages.  The agricultural futures profits index is computed as the sum of the standardized symmetric percent changes in the four series, each weighted by the commodity's annual share of Iowa cash farm income.
ILII Components: Six Month Overview
Note: Arrows indicate the direction of the series' contribution to the ILII for the latest month.  Positive changes in components contributes positively when added to the ILII, except for the average weekly initial unemployment claims.  Changes in average weekly initial unemployment insurance claims are inverted when added to the ILII, thus a negative change in the series contributes positively to the index.

Agricultural Futures Profits Index

The agricultural futures profits index is computed as the sum of the standardized symmetric percent changes in the four series (corn profits, soybean profits, cattle profits and hog profits), each weighted by the commodity's annual share of Iowa cash farm income.

Average Weekly Manufacturing Hours

The weekly average of hours worked by employees in the manufacturing sector in Iowa.  If the economy is just beginning to grow out of a recession, businesses will tend to hold off on hiring new workers until they are more confident that economic growth is improving, and will instead ask their existing workers to work more hours. As the economy continues to improve, eventually businesses will be forced to add more workers, and this increase in employment will reinforce the positive trend in economic growth. In contrast, if the economy is just beginning to slow down, employers wishing to maintain employee loyalty will try to keep their workers by reducing hours worked, rather than immediately laying-off workers. If the slowdown deepens into a recession, then eventually businesses are forced to lay off workers, which reinforces the negative trend in economic growth.  As part of the ILII, changes to the average weekly manufacturing hours in Iowa are calculated based on a 12-month backward moving average.

Average Weekly Unemployment Claims

Initial claims tallies the number of individuals seeking unemployment benefits for the first time.  This reflects emerging joblessness on a weekly basis.  The ILII uses a 12-month backward moving average of the weekly average of initial claims for unemployment insurance in Iowa.  Changes in the 12-month backward moving average and are inverted when added to the ILII, as a declining 12-month moving average is a positive indicator for Iowa's economy.

Diesel Fuel Consumption

Diesel fuel consumption measures demand for the transport of manufacturing inputs and final products within and through the state.  It also indicates demand for the production and transport of agricultural commodities.  As part of the ILII, changes to the number of taxable gallons of diesel fuel sold in Iowa are calculated based on a 12-month moving average.  An increasing 12-month backward moving average is a positive indicator for Iowa's economy.

Iowa Stock Market Index

The Iowa stock market index contains values for Iowa-based companies or companies with a significant Iowa presence that are publicly traded.  The index reflects gains and losses of those companies' stock value.    An increase in the index reflects growth in the value of Iowa companies, and is a positive indicator for the economy.  The Iowa stock market index is standardized to the 1984-1986 period.

National Yield Spread

The yield spread figure is the difference between two key interest rates:
  • the 10-year Treasury note (T-note) rate (or long-term rate) set by bond market investors; and
  • the 3-month Treasury bill rate (or short-term rate) set by the Federal Reserve (the Fed).
The yield spread is positive when the long-term rate is above the short-term rate.  When the short-term rate rises above the long-term rate, the yield spread will dip below zero creating an inversion point.  Generally, a low or declining yield spread indicates a less vigorous economy.  Whereas, a higher or rising yield spread, indicates a more vigorous future economy.

New Orders Index

Diffusion index measuring the share of purchasing managers in Iowa reporting increases in orders received for manufacturing output.  Changes are calculated based on a 12-month backward moving average.  An increase in the index is a positive indicator for Iowa's economy.

Residential Building Permits

An increase in the number of total permits issued in Iowa for the construction of residential housing units is a positive indicator for Iowa's economy.  Changes are calculated based on a 12-month backward moving average.

Standardization Factors

The standardization factors are the inverse of the standard deviation of the month-to-month changes in each component over the reported period.  These factors equalize the volatility of the contribution from each component and are normalized to one.
The month-to-month changes are based on 12-month backward moving averages for all components except the agricultural futures profits index, the Iowa stock market index, and yield spread.  The yield spread and new orders index changes are simple arithmetic changes; month-to-month changes for the rest of the components are computed as symmetric percentage changes.
Standardization factors are updated annually in August.