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Iowa Leading Indicators Index May 2016 Report

Date: July 5, 2016

The Iowa Leading Indicators Index (ILII) decreased 0.1 percent to 105.6 (100=1999) in May 2016 from 105.8 in April, reversing the positive growth seen the last two months.  Along with the negative change in the index, the monthly diffusion index decreased from 43.8 in April to 31.3 in May with only two of the eight components experiencing positive changes. 

The annualized six-month change was unchanged from April at -0.9 percentage points. However, the six-month diffusion index decreased to 12.5 with seven of the eight components experiencing a decrease of greater than 0.05 percent over the last half a year. Residential building permits is the only component to show positive growth over the past six months despite the component experiencing the largest negative monthly change in May. The six-month diffusion index decreased as a result of diesel fuel consumption’s six-month growth rate dropping below 0.05 percent in May.

Iowa’s non-farm employment index continued in its fifth year of growth in May.  The ILII has experienced two small negative changes and two positive changes over the last four months while the six-month annualized change remains negative, but much improved from six months ago. The monthly diffusion index reflects widespread weakness, but most components were only down slightly in May. The recovering six-month values but tepid May results suggest employment growth will continue but could weaken through the summer.

There were two positive contributors to the ILII in May, the agricultural futures profits index (AFPI) and the Iowa stock market index. The AFPI was a positive contributor to the ILII for the third month in a row. A jump in near futures prices for hogs, corn, and soybeans in May was strong enough to offset the continuing declines in futures prices for cattle. Current crop year 2015 corn and soybean prices finally rose above crop year 2014 prices. Current crop futures prices for corn are up 8.2 percent over last May. Soybean current crop futures prices increased 11.3 percent over last May. In May, hogs experienced a 3.1 percent year-over-year decrease in near futures contract prices. However, including a 17.4 percent decrease in break-even costs pushed expected hog profits up to 18.6 cents per pound. Cattle near futures prices fell 16.4 percent compared to last year. Expected cattle profits increased, although only slightly, for the first time in over a year to a loss of 24.8 cents per pound in May from a loss of 24.9 cents per pound in April.

The stock market in May experienced only moderate growth. The Iowa stock market index had 19 of the 35 stocks experience a positive gain, with 7 of the 12 financial-sector company stocks seeing gains. Gains experienced by companies including Monsanto, Deere and Company, Wells Fargo, and Casey’s drove the growth in the index to 84.16 in May from 83.87 in April. The index remains well below the December peak.

There were five negative contributors to the ILII in May. After recording the largest positive contribution to the index in April, residential building permits turned down and was the largest negative contributor in May. May 2016 residential building permits were down 20.3 percent from May 2015 and down 17.7 percent from the historical average for May (1998-2015). The 12-month moving average of permits fell to 929 in May from 950 in April. Losses were primarily seen in multi-family permits. Permits for buildings with five or more units decreased 103.4 percent from 413 permits in May 2015 to 203 permits in May 2016. Single-family permits decreased 6.9 percent from 774 permits in May 2015 to 724 permits in May 2016.

Average manufacturing hours was the second largest negative contributor. The 12-month moving average for the manufacturing hours’ component slipped to 41.93 from 41.99 in April. May 2016 average manufacturing hours were 41.8, less than the 42.1 hours in May 2015, but nearly a full hour above the historical average for May (1996-2015).

The other negative contributors were the national yield spread, average weekly unemployment claims (inverted), the new orders index, and diesel fuel consumption. The yield spread narrowed in May with the long-term interest rate remaining unchanged at 1.81 while the short-term interest rate increased 5 basis points to 0.28. The increase in the short term rate reflected ongoing expectations of a pending increase in the Federal Funds rate while the stagnation of the long-term rate suggests continued expectations of weak long-term national economic growth. The 12-month moving average of weekly unemployment insurance claims increased to 3,113 in May from 3,103 in April, where changes are inverted when considered in the index. Average monthly claims were up 4.8 percent from last May and 14.2 percent above the monthly historical average (1987-2015). Like the increased claims in May, the Bureau of Labor Statistics reported that the Iowa unemployment rate (a coincident indicator) expanded to 3.9 percent in May 2016 from May 2015’s 3.6 percent.

The May monthly value of the new orders index of 50.0 was below April’s 51.1 and was below May 2015’s 51.0. The 12-month moving average dipped further to 47.6. The monthly value of the index had been above the 50.0 threshold that signals expansion in manufacturing for four months, after dipping below the threshold for the prior five months.  Taxable diesel gallons were 59.03 million gallons in May 2016, below the 59.85 million gallons reported in May 2015. Diesel fuel consumption, a measure of semi-truck traffic within and across Iowa, has demonstrated volatility during the last year, with four positive, two near zero, and six negative contributions. In May, the 12-month moving average of diesel fuel consumption dipped to 58.33 million gallons from 58.40.

The monthly Iowa Leading Indicators Index report is available on the Department's website. Please contact Victoria L. Daniels at (515) 281-8450 or Victoria.Daniels@iowa.gov if you have any questions about the report.