Federal Reserve's Leading Indicator Index 2012-03-01 to 2012-03-31

Summary:
Florida's Leading Index increased to 1.98 in March, meaning that the Philadelphia Fed's Coincident Index for Florida is expected to grow by 1.98% over the next six months. This is a higher growth rate than was expected in February, for which month the Leading Index now reads 1.56, adjusted up from 1.51 last month. Florida's Coincident Index came in at 145.54 in March, up from February's adjusted figure of 145.12. Based on the Coincident and Leading Index figures from six months ago, the Philadelphia Fed expected Florida's index to grow to 145.69, although these figures have been updated every month since then.

Extended Analysis:
Florida’s Coincident Index has not wavered from its upward trend since January 2010—over two years ago. In accomplishing such a triumph, however, it has only managed to reach a level parallel with March 2009. This may sound bleak, considering that in the early days of March three years ago the U.S. stock market was at rock bottom, but the Philly Fed’s coincident indexes rely heavily on employment data. At a seasonally adjusted 9.0% this March, Florida’s unemployment rate is still not favorable when compared with normal economic times, but it is a vast improvement of the post-recession high of 11.4%. Moreover, it is an improvement over the 9.6% figure observed in March 2009, and so clearly other components of Florida’s Leading Index make up the difference. Nonfarm payrolls were a little more than 4,000 individuals higher in March 2009—but percentagewise this only amounts to a difference of less than 0.1%. So in reality payrolls were about equal over this three-year period. The last employment component of the Philly Fed’s coincident indexes is the average number of hours worked in the manufacturing sector by all employees, which was once again significantly higher in March of 2012.

One interesting note is that nonfarm payrolls are essentially equal over the three-year span, but the unemployment rate fell. Since the size of Florida’s labor force was greater in 2012, this means that the percentage of agricultural jobs in the state has increased. According to an article from Sunshine State News, this has been the case so far in 2012, as agricultural jobs have grown by more than any other industry. Additionally, the Bureau of Labor Statistic (BLS) most recent occupational wage data—which is from May 2011—shows farming, fishing and forestry occupations as having a mean hourly wage of $10.23, while when considering all occupations in Florida the mean hourly wage rises to $19.59. This brings us to the last component of the coincident indexes, state-level wage and salaries deflated by the CPI, which is currently more than two percent lower than it was three years ago. As is common during an economic recovery, some individuals in Florida’s workforce have been forced to take lower-paying jobs in order to make ends meet. Although this helps explain why Florida’s index currently matches levels from March 2009, it is also important to note that the index is now trending upwards, while in 2009 it was trending downwards.

Florida’s Leading Index predicts more positive ground for the Coincident Index in the near future, as this month’s figure predicts just under a 2% six-month growth rate. This is not surprising, considering the components of Florida’s Leading Index—including those already discussed above—showed quite favorable results in March. Building permits and initial unemployment claims both produced their best figures of 2012 in that month (see Extended Analysis for each). Moreover, manufacturing supplier deliveries for the U.S. were faster for the second consecutive month in March, according to the Institute for Supply Management (ISM). Overall, four industries reported slower delivery times, five industries reported faster delivery times, and nine industries were unchanged from the month before. The last component of the leading index, the yield curve, is still reporting a very low probability of a recession one year from now, and so contributed to the positive reading as well (see Extended Analysis for NY Federal Reserve’s Recession Indicator). As much of the data for the Philly Fed’s indexes is available in advance, there are already some clues that April is not shaping up to be a good a month as March, at least from an economic perspective. Therefore, it seems likely that Florida’s Leading Index will lower its six-month forecast of the Coincident Index for April, perhaps to around 1.2%.