The Iowa Leading Indicators Index December 2020 Report and Memo are indicative of economic activity experienced in December of 2020. The Iowa Leading Indicators Index (ILII) increased to 104.2 in December 2020 (100=1999) from 103.8 in November. December is the fifth month in the last six months that the index has increased since the COVID Crisis in Iowa began. With six of the eight components contributing positively, the monthly diffusion index remained unchanged at 62.5 in December from November. This marks the fifth month in a row the monthly diffusion index has registered at or above 50.0.
December marks the third month in a row since February 2020 that the ILII has not shown recessionary signals. 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 50.0With the positive improvements in contractionary signals, this report suggests that employment growth will improve over the next 3 to 6 months. The six-month diffusion index remaining unchanged in December at 62.5 and the annualized six-month ILII change value was 2.1 percent. These are good indications of a positive economic turnaround despite the decline in the Iowa non-farm employment coincident index. Five of the eight component indicators (diesel fuel consumption, the Iowa Stock Market Index, the national yield spread, the new orders index, and residential building permits) experienced an increase of greater than 0.05 percent over the last half-year. The Iowa non-farm employment coincident index1 recorded a 0.37 percent decline in December, the thirteenth month in a row of decline.
Six of the eight components added to the ILII’s monthly increase in December: residential building permits, the Iowa Stock Market Index, the new orders index, average manufacturing hours, the national yield spread, and the agricultural futures profits index. December 2020 residential building permits were 120.4 percent above December 2019 (1,115 vs 506), and 65.5 percent above the historical average for December (1998-2019). The 12-month moving average of residential building permits increased to 1,047 in December from 996 in November. Increases in permits were concentrated in single family homes and permits for five or more units, up from 408 in December 2019 to 733 and up from 84 in December 2019 to 347 in December 2020 (79.7% and 313.1% respectively).
In December 2020, 26 of the 31 companies in the Iowa Stock Market Index gained value, including all of the 11 financial-sector companies. With nearly all of the stocks had gains, the index increased to 93.03 in December from 85.5 in November. Gains experienced by Wells Fargo Financial, John Deere and Company, Corteva, Tyson Foods, ConAgra, Principal Financial Group, and Alliant Energy contributed to the growth in the index. The December 2020 monthly value of the new orders index decreased to 66.2 from 77.8 in November, yet was substantially higher than the December 2019 value of 50.8. With the year-over-year increase, the 12-month moving average of the new orders index increased to 59.2 from 57.9.
The 12-month moving average of manufacturing hours increased to 40.14 in December from 40.11 in November. December 2020 average hours were 40.5, above the 40.1 hours in December 2019, yet over one hour below the historical monthly average (1996-2019). This was the first month after fifteen consecutive months in a row of decreases that the 12-month moving average of manufacturing hours increased.
During December, the yield spread expanded to 0.84 percent from 0. 78 percent in November. The long-term rate increased six basis points while the short-term rate remained unchanged. December is the eighth expansion of the yield spread in the last twelve months representing potentially increasing confidence in financial markets for long-term economic growth.
The agricultural futures profits index showed an increase with both grain commodities expecting to have profit gains, while expected profit for livestock commodities decreasing. Compared to last year, new crop corn prices were 9.4 percent higher and soybean prices were 11.8 percent higher. The December crush margin for hogs decreased 2.1 percent from November while the crush margin for cattle decreased 5.1 percent.
Diesel fuel consumption and average weekly unemployment claims (inverted) dragged down the index. Taxable diesel gallons were 64.28 million gallons in December 2020, 3.7 percent lower than the 66.74 million gallons recorded for December 2019. The 12-month moving average of diesel fuel consumption decreased to 63.37 million gallons in December from 63.57 million in November. 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. Despite the monthly decrease in December there is still a growing demand for the transport of manufacturing inputs and final products as-well-as agricultural commodities.
The 12-month moving average of weekly unemployment insurance claims increased to 10,387 in December from 10,357 in November. Average monthly claims were up 5.8 percent from last December, and 9.7 percent above the monthly historical average (1988-2019). While still elevated, jobless claims have improved sharply from their unprecedented highs of March and April. The 7,198 average weekly unemployment claims for the month of December was 82.4 percent lower than that of March’s 40,835 average weekly unemployment claims. The Bureau of Labor Statistics reported that the Iowa unemployment rate (a coincident indicator) decreased to 3.1 percent in December from a revised 3.8 percent in November. The state’s jobless rate was only 2.8 percent one year ago. The U.S. unemployment rate remained unchanged at 6.7 percent in December from November. "The drop in December's unemployment rate, as well as the increase of an additional 22,800 Iowans finding work, is a good sign for Iowa's economic recovery," said Director Beth Townsend, Iowa Workforce Development.
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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