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The Iowa Leading Indicators Index August 2020 Report and Memo are indicative of economic activity experienced in August of 2020. The Iowa Leading Indicators Index (ILII) remained unchanged at 103.1 in August 2020 (100=1999) from a revised 103.1 in July. After revisions, this is the third month in a row that the index has registered at 103.1. With four of the eight components contributing positively, the monthly diffusion index improved to 50.0 in August from a revised 37.5 in July, the highest that the diffusion index has reached since January 2020.
The ILII was constructed to signal economic turning points with two key metrics that when seen together are considered a signal of a coming contraction: a six-month annualized change in the index below -2.0 percent and a six-month diffusion index below 50.0. The six-month annualized change in the index improved to -5.9 percent in August from a revised -6.4 percent in July. This was the twenty-second consecutive month of a negative value and the sixth month below a -2.0 percent change. The six-month diffusion index remained unchanged at 25.0 in August from June and July. Two of the eight component indicators (national yield spread and residential building permits) experienced an increase of greater than 0.05 percent over the last half-year. The downward revision of the July index reflects updates to the reported average manufacturing hours.
The Iowa non-farm employment coincident index1 recorded a 0.50 percent decline in August, the ninth month in a row of decline and the fifth largest one month decline in the 20-year history behind only April, May, June, and July 2020. The six-month diffusion index remaining unchanged at 25.0 in August, the annualized six-month ILII change value of -5.9 percent and the decline in the Iowa non-farm employment coincident index strongly suggest the Iowa economy will continue to weaken into second quarter FY 2021. This report suggests that employment growth will weaken over the next 3 to 6 months.
Four of the eight components added to the ILII’s monthly increase in August: the new orders index, the Iowa stock market index, the national yield spread, and the agricultural futures profits index. The August 2020 monthly value of the new orders index increased to 72.5 from 66.4 in July, and was higher than the August 2019 value of 51.8. With the year-over-year increase, the 12-month moving average of the new orders index increased to 50.6 from 48.8.
In August, the Iowa stock market index experienced gains in 26 of the 31 companies, including 9 of the 11 financial companies. With over three-fourths of the stocks experiencing gains, the index increased to 79.74 in August from 76.55 in July. John Deere and Company, Tyson Foods, Corteva, ConAgra, and Principal Financial Group contributed to the growth in the index. During August, the yield spread expanded to 0.55 percent from 0.49 percent in July. The long-term rate increased 3 basis points while the short-term rate decreased 3 basis points. August is the fourth expansion of the yield spread in the last six months representing potentially increasing confidence in financial confidence for long-term economic growth and reduced confidence in short-term economic growth.
The agricultural futures profits index showed expected profit gains in both livestock commodities and losses in the two crop commodities. The August crush margin for hogs increased 3.3 percent from July while the crush margin for cattle increased 7.8 percent. Compared to last year, new crop soybean prices were 3.7 percent higher while corn prices were 12.5 percent lower.
Average manufacturing hours, residential building permits, average weekly unemployment claims (inverted), and diesel fuel consumption dragged down the index. The 12-month moving average of manufacturing hours decreased to 40.35 in August from a revised 40.48 in July. August 2020 average hours were 39.7, below the 41.2 hours in August 2019, and over an hour and a half below the historical monthly average (1996-2019). This was the twelfth month in a row that the 12-month moving average of manufacturing hours has decreased.
August 2020 residential building permits were 13.6 percent below August 2019 (1,217 vs 1,409), yet 6.3 percent above the historical average for August (1998-2019). The 12-month moving average of residential building permits decreased to 981 in August from 997 in July. August marked the twenty-first month in a row that the 12-month moving average fell below 1,000 permits. Decreases in permits were concentrated in permits for 5 or more units, down from 428 in August 2019 to 282 in August 2020 (-34.1%).
The 12-month moving average of weekly unemployment insurance claims increased to 9,767 in August from 9,480 in July. Average monthly claims were up 190 percent from last August, and 128 percent above the monthly historical average (1988-2019). The 5,688 average weekly unemployment claims for the month of August was 86.1 percent lower than that of March’s 40,835 average weekly unemployment claims.
For the last two years, the 12-month moving average of Iowa weekly unemployment insurance claims had been below 3,000, a threshold not crossed during the previous 11 years. With the historical employment impact of the COVID-19 Pandemic, the 12-month moving average jumped to a level not reached since November 2009. The Bureau of Labor Statistics reported that the Iowa unemployment rate (a coincident indicator) decreased to 6.0 percent in August from 6.6 percent in July. The state’s jobless rate was only 2.8 percent one year ago. The U.S. unemployment rate decreased to 8.4 percent in August from 10.2 percent in July. “Thankfully, Iowa’s unemployment rate has continued to decline since our peak month in April, 2020, when we saw initial claims of 157,324. The sustained decline shows the resilience of Iowa’s economy as we navigate the impact of the pandemic,” said Director Beth Townsend, Iowa Workforce Development.
Taxable diesel gallons were 66.28 million gallons in August 2020, 1.0 percent lower than the 66.96 million gallons recorded for August 2019. The 12-month moving average of diesel fuel consumption decreased to 62.79 million gallons in August from 62.85 million in July. Diesel fuel consumption, a measure of semi-truck traffic within and across Iowa, was a negative contributor for only the ninth time in the last two years indicating that despite this one month of negative change, there is 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.
1 The Iowa non-farm employment coincident index is the measure of the number of workers in Iowa excluding farm workers and workers in a handful of other job classifications. This is measured by the Bureau of Labor Statistics (BLS), which surveys private and government entities throughout the U.S. about their payrolls. The BLS reports the nonfarm payroll numbers to the public on a monthly basis and the index then creates a 12-month moving average.
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.
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