Iowa Leading Indicators Index: October 2019 Report

Having trouble viewing this email? View it as a Web page.

IDR Capital Header 2


Iowa Leading Indicators Index: OCtber 2019 Report


The Iowa Leading Indicators Index (ILII) remained unchanged in October 2019 at 107.0 in September (100=1999). This is the fourth time in the last five months that the index registered at 107.0. With only three of the eight components contributing positively, the monthly diffusion index was 43.8 in October. The Iowa stock market index component series was revised in October because one of the companies included in the series was acquired by its parent company and is no longer publicly traded.


The annualized six-month change improved to -0.7 percent in October from -1.0 percent in September. The six-month diffusion index remained unchanged at 37.5 in October which is also the third time the last four months that the six-month diffusion index registered at 37.5. Only three of the eight indicators (diesel fuel consumption, Iowa stock market index, and residential building permits) experienced an increase of greater than 0.05 percent over the last half-year.


With a 0.04 percent increase in October, Iowa’s non-farm employment index has experienced twenty-four consecutive months of positive growth. However, the negative annualized six-month ILII value and the six-month diffusion index of 35.7 suggest the broad-based signals of weakness in the Iowa economy continue. The goal of the ILII is to signal turning points in the Iowa economy as measured by employment. This report suggests that over the next 3 to 6 months, employment growth will weaken.


Only three of the index’s eight components were positive contributors to the ILII in October. These include, in order from largest contributor to smallest, the national yield spread, residential building permits, and the new orders index. The national yield spread, at 0.03 in October, returned to a positive ratio for the first time since May 2019, as the long-term rate increased 1 basis point and the short-term rate decreased 25 basis points. The increase in the long-term interest rate was the second month in a row of positive growth after nearly a year of decreases, suggesting a potential turn around in weakened expectations for long-term national economic growth. The Federal Reserve cut the federal funds target rate by .25 percent to a range of 1.5 percent to 1.75 percent as the Fed tries to stay ahead of a slower economy. The decrease was widely expected by analysts following a series of four rate hikes in 2018.


October 2019 residential building permits were 17.0 percent above October 2018 (1,699 vs 1,452) and 37.9 percent above the historical average for October (1998-2018). The 12-month moving average of residential building permits increased to 933 in October from 912 in September. October marks the eleventh month in a row that the 12-month moving average has registered below 1,000 permits. Increases in permits were concentrated in single family homes, up from 826 in October 2018 to 1,014 in October 2019 (22.8%).


The October 2019 monthly value of the new orders index increased to 59.3 from 45.9 in September and was higher than the October 2018 value of 57.8. With the year-over-year 

increase, the 12-month moving average of the new orders index increased to 53.86 from 53.73. Prior to October, the 12-month moving average of the new orders index had not experienced a positive gain since September 2018. The monthly index improved to above 50.0, signaling growth in manufacturing demand for the fourth time in six months.


Average manufacturing hours, average weekly unemployment claims (inverted), the agricultural futures profits index, the Iowa stock market index, and diesel fuel consumption were the components that contributed negatively to the index. The 12-month moving average of manufacturing hours decreased to 41.44 in October from 41.54 in September. October 2019 average hours were 41.4, over an hour below the 42.6 hours in October 2018 as-well-as nearly a half hour below the historical monthly average (1996-2018).


The 12-month moving average of weekly unemployment insurance claims increased to 2,734 in October from 2,696 in September, where changes are inverted when considered in the ILII. Average monthly claims were up 21.6 percent from last October, yet 15.8 percent below the monthly historical average (1987-2018). For the last two years, the 12-month moving average of Iowa weekly unemployment insurance claims has been below 3,000, a threshold not crossed during the previous 11 years. The BLS reported that the Iowa unemployment rate (a coincident indicator) increased to 2.6 percent in October from 2.5 percent in September. The state’s jobless rate was lower at 2.4 percent one year ago. The U.S. unemployment rate increased to 3.6 percent in October from 3.5 percent in September. The Iowa labor force participation rate registered at 70.4 percent, 2.7 percent higher than one year ago and the highest monthly participation rate since December 2014.


The AFPI experienced reductions in expected profits for hogs and cattle, as well as in expected profits for corn and soybeans. The October crush margin for hogs was down 1.3 percent from September while the crush margin for cattle was down 3.5 percent. Compared to last year, new crop corn prices were 5.9 percent higher although breakevens were 7.9 percent higher holding down expected profits, and soybean prices were 7.6 percent higher although breakevens were 8.3 percent higher holding down expected profits.


In October, the Iowa stock market index experienced gains in 13 of the 31 stocks, with five of the eleven financial-sector company stocks experiencing gains. With nearly two-thirds of the stocks, including Tyson Foods, Corteva, Principal Financial, ConAgra, and CenturyLink experiencing losses, the index decreased to 109.90 in October from a revised 110.22 in September. Employers Mutual Casualty Company (EMCC) completed its acquisition of all remaining public shares of EMC Insurance Group (EMCI) that EMCC did not already own in late September 2019. As a result of this buyout, EMCI has been fully enveloped by its parent company EMCC and is no longer publicly traded on the stock market.


Taxable diesel gallons were 62.25 million gallons in October 2019, 0.1 percent lower than the 62.31 million gallons recorded for October 2018. The 12-month moving average of diesel fuel consumption decreased to 62.66 million gallons in October from 62.66 million in September (appearing unchanged due to rounding). Diesel fuel consumption, a measure of semi-truck traffic within and across Iowa, was a negative contributor for only the fourth time in the last twelve months indicating growing demand for the transport of manufacturing inputs and final products and agricultural commodities.


The monthly Iowa Leading Indicators Index report is available on the Department's website.

 


The 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.