Leading Indicators Slow, But Only For A Few States

by: Bespoke Investment Group

The Philadelphia Fed regularly publishes monthly indices of leading economic indicators for all 50 states. Aggregating this data is one way to look at the breadth of the economic expansion, and is also a good way to see what the outlook is for the broad economy. As recently as November 2014, all 50 states had leading indicator readings higher than the year previous. Since then, however, there’s been a marked deterioration as 6 states currently have negative leading indicator readings YoY.

Below at top left we chart a diffusion index which measures the number of states with leading indicators above 0. Only 44 states are positive YoY, with Indiana, Iowa, Louisiana, North Dakota, Oklahoma, Pennsylvania and Wyoming down YoY. West Virginia was down as-of February but ticked up, while Pennsylvania is a new addition to the negative category. That’s compared with four states (Alaska, Louisiana, North Dakota, and Wyoming) down or flat YoY as-of December. We note that most of states showing weakness (Louisiana, North Dakota, Oklahoma, and Wyoming) are highly dependent on petroleum extraction, a sign of the impact that the crash in oil has had on the US economy. While the current deterioration looks concerning, it’s not without precedent. In the mid-1980s, a similar mid-cycle pause took place. The red line indicates the level that has historically indicated a recession (i.e. “no going back”) in the past. We also include the average YoY change in leading indicators and the median YoY change. As shown, both are right in the middle of expansion territory, not showing a fantastic economy but not showing a huge recession risk either.

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