Iowa Leading Indicators Index September 2017 Report

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The statutory mission of the Iowa Department of Revenue is to serve Iowans and support state government by collecting all taxes required by law, but no more.


The Iowa Leading Indicators Index (ILII) increased 0.5 percentage points to 107.8 in September 2017 from 107.2 (100=1999) in August. The monthly diffusion index increased to 75.0 in September from 68.8 in August with five of eight components contributing positively. 


The annualized six-month change increased to 1.8 percent in September from 0.9 percent in August, but it remains below the 2.2 percentage points seen in April. The six-month diffusion index remained unchanged at 62.5 in September from the August six-month diffusion index. Five of the eight indicators (average manufacturing hours, average weekly unemployment claims (inverted), diesel fuel consumption, the Iowa stock market index, and new orders index) experienced an increase of greater than 0.05 percent over the last half a year. For the six-months ending in September, the agricultural futures profits index (AFPI) no longer met that threshold, but was replaced by the Iowa stock market index.


With an increase of 0.07 percent in September, Iowa’s non-farm employment index, based on the establishment survey conducted by the BLS, extends into a seventh consecutive year of positive growth. Growth in the index was boosted by gains in the Iowa stock market index that were driven by the finalization of the Dow-DuPont merger that resulted in a 125 percent jump in the capitalization value of that one stock.  The index would have experienced positive growth (0.2 percentage points) without the Dow-DuPont impact that will be realized as a one-time anomaly on the ILII monthly value.  The positive ILII signals suggest that employment growth will continue this fall.


There were five positive contributors to the ILII in September; the Iowa stock market index, the new orders index, diesel fuel consumption, average manufacturing hours, and the average weekly unemployment claims (inverted). The Iowa stock market index experienced gains in 26 of the 35 stocks, with 9 of the 12 financial-sector company stocks seeing gains. Value increases experienced by Dow-DuPont, Wells Fargo, Monsanto, Tyson Foods, and Rockwell Collins drove the index to 109.57 in September from 94.38 in August. As noted above, the increase largely reflects a jump in the capitalization value of Dow-DuPont, a result of the merger finalizing effective September 1.


The September monthly value of the new orders index increased to 63.2 from August’s 53.6, and logged a value well above the September 2016 value of 41.6. With the year-over-year increase, the 12-month moving average of the new orders index increased to 57.8 from 56.0. For the tenth month in a row the monthly value of the new orders index registered above 50.0, the threshold that signals expansion in manufacturing.


Taxable diesel gallons were 65.56 million gallons in September 2017, 6.8 percent higher than the 61.40 million gallons reported in September 2016. In September, the 12-month moving average of diesel fuel consumption increased to 59.43 million gallons from 59.08 million in August. Diesel fuel consumption, a measure of semi-truck traffic within and across Iowa, continues to experience volatility, with eight positive contributions and four negative contributions in the last twelve months. 


The 12-month moving average of manufacturing hours increased to 41.79 in September from 41.68 in August. September 2017 average hours were 42.6, above the 41.3 hours in September 2016, and an hour above the historical monthly average (1996-2016). The 12-month moving average of weekly unemployment insurance claims decreased to 2,655 in September from 2,659 in August, where changes are inverted when considered in the index. Average monthly claims were down 2.4 percent from last September and 22.2 percent below the monthly historical average (1987-2016). September 2017 marks the eleventh month in a row with the 12-month moving average of Iowa weekly unemployment insurance claims below 3,000, a threshold not crossed during the previous 11 years. The Bureau of Labor Statistics reported that the Iowa unemployment rate (a coincident indicator) decreased from 3.3 percent in August to 3.2 percent in September. Although both unemployment statistics look strong, the Iowa labor force participation rate continues to drop, falling to 68.5 percent in September 2017 from 69.4 percent one year ago, a recent high of 70.4 percent in October 2014, and 72.7 percent in August 2009.


Residential building permits, the national yield spread, and the agriculture futures profit index were the three components that contributed to the index negatively. The 12-month moving average of residential building permits decreased to 1,085 in September from 1,108 in August. September 2017 residential building permits were 20.3 percent below September 2016, and 6.0 percent below the historical average for September (1998-2016). Decreases were primarily experienced in permits for buildings with five or more units. Permits for buildings with five or more units decreased 310.7 percent from 460 permits September 2016 to 112 permits in September 2017.


The yield spread contracted to 1.15 percent as the long-term rate decreased 1 basis point while the short-term rate increased 2 basis points. The decrease in the long-term interest rate suggests concern about the long-run economic strength of the national economy in the aftermath of the hurricanes that hit during the month.  The increase in the short-term interest rate likely reflects expectations of another Federal Reserve interest rate increase in December.


The AFPI was a negative contributor to the ILII for the fifth time in the past 12 months with expected profit decreases experienced by two commodities offsetting the increases experienced by the other two commodities included in the index. Compared to last year, new crop corn prices were 6.0 percent higher; soybean prices were 0.6 percent higher, but could not compensate for the higher breakeven costs. September crush margins for hogs were up 0.3 percent from August while crush margins for cattle were down 1.2 percent.


The monthly Iowa Leading Indicators Index report is available on the Department's website. Please contact Amy Harris at (515) 281-0196 or if you have any questions about the report.