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Iowa Leading Indicators Index June 2016 Report

Date: August 2, 2016

The Iowa Leading Indicators Index (ILII) rounded up to 105.7 (100=1999) in June 2016 from 105.6 in May, but the small increase rounded to 0.0 percent.  Along with the positive change in the index, the monthly diffusion index increased from 31.3 in May to 50.0 in June with four of the eight components experiencing positive changes. 

The annualized six-month change improved from -0.9 percentage points in May to 0.0 percentage points in June. Likewise, the six-month diffusion index increased to 43.8 with three of the eight components experiencing an increase of greater than 0.05 percent over the last half a year. Residential building permits was joined by diesel fuel consumption, and the agricultural futures profits index as components experiencing increases greater than 0.05 percent over the past six months. In addition, average weekly unemployment claims (inverted) experienced a change greater than 0.00 yet less than 0.05 percent.

Iowa’s non-farm employment index continued in its fifth year of growth in June.  The ILII has experienced three negative monthly changes and three positive monthly changes over the last six months. With the six-month annualized change  leveling out at 0.0 percent change in June after 18 consecutive months of negative change, June results show no indication of change from current employment growth through the summer and into autumn.

There were four positive contributors to the ILII in June; the agricultural futures profits index (AFPI), diesel fuel consumption, average weekly unemployment claims (inverted), and residential building permits. The AFPI was a positive contributor to the ILII for the fourth month in a row and the largest positive contributor for the second month in a row. Future crop year 2016 corn and soybean prices showed improvements, prices for corn rose 11.0 percent over last June and soybean prices increased 19.4 percent over last June. Hogs experienced a 6.1 percent year-over-year increase in near futures contract prices and a 12.9 percent decrease in break-even costs which pushed expected hog profits up to 19.6 cents per pound. Cattle near futures prices fell 9.3 percent compared to last year but the drop was offset by a similar drop in break-even costs. Expected cattle profits increased for the second month in a row to a loss of 24.3 cents per pound in June from a loss of 24.8 cents per pound in May.

Taxable diesel gallons were 58.04 million gallons in June 2016, above the 56.21 million gallons reported in June 2015. Diesel fuel consumption, a measure of semi-truck traffic within and across Iowa, continued to demonstrate volatility, with six positive contributions and six negative contributions alternating over the last year. In June, the 12-month moving average of diesel fuel consumption increased to 58.49 million gallons from 58.33.

The 12-month moving average of weekly unemployment insurance claims decreased to 3,091 in June from 3,113 in May, where changes are inverted when considered in the index. Average monthly claims were down 9.9 percent from last June and 20.4 percent below the monthly historical average (1987-2015). In contrast to the decreased claims in June, the Bureau of Labor Statistics reported that the Iowa unemployment rate (a coincident indicator) expanded to 4.0 percent in June 2016 from June 2015’s 3.6 percent. June 2016 residential building permits were up 5.9 percent from June 2015 and 4.4 percent from the historical average for June (1998-2015). The 12-month moving average of permits increased to 935 in June from 929 in May. Growth was dominated by single-family permits. Single-family permits increased from 774 permits in June 2015 to 857 permits in June 2016. The positive growth in single-family and buildings with two units offset negative growth in buildings with three or more units.

There were four negative contributors to the ILII in June; the national yield spread, the new orders index, average manufacturing hours, and the Iowa stock market index. The yield spread contracted to 1.37 percent as the long-term rate decreased 17 basis points while the short-term rate decreased 1 basis point. The decrease in the short term rate reflected waning expectations of an increase in the Federal Funds rate while another monthly decrease in the long-term rate suggests further expectations of weak long-term national economic growth.

The June monthly value of the new orders index dropped to 46.1 from May’s 50.0 and was below June 2015’s 53.9. The 12-month moving average fell further to 46.9. The monthly value of the index registered below 50.0 for the first month after five months at or above the 50.0 threshold that signals expansion in manufacturing. The 12-month moving average for the manufacturing hours’ component slipped to 41.89 from 41.93 in May. June 2016 average manufacturing hours were 41.8, less than the 42.1 hours in June 2015, but nearly a full hour above the historical average for June (1996-2015).

Iowa stocks experienced a minor slip in June. The Iowa stock market index had 22 of the 35 stocks experience a positive gain, with 8 of the 12 financial-sector company stocks seeing gains. Despite gains in nearly two-thirds of the Iowa stocks including ag-related Dow-DuPont (Pioneer), Monsanto, Deere and Company, and ConAgra Foods, losses experienced by other companies including Wells Fargo and Tyson’s drove the decrease in the index to 83.82 in June from 84.25 in May. The stock market index remains well below highs seen in early 2015.

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.