Since state GDP estimates are annual and only published with a significant delay, what variables can we look to for information about what is happening with the state’s economy NOW? One option is to look at the FRB of Philadelphia state activity indexes.
The FRB of Philadelphia coincident (economic activity) index consists of variables that tend to move with the economy. For example, if the economy is currently growing, the coincident index is also likely to be growing. Variables included in the coincident index are: the state’s long term trend, state-level nonfarm payroll employment, state-level average hours worked in manufacturing, state-level unemployment rate, and state-level wage and salary disbursements deflated by the consumer price index (U.S. city average). The most recent coincident index data release at the time of this writing was on May 20, 2014 for April, 2014. The data for Kentucky show:
April 2014 Coincident Activity Index for Kentucky: 143.49
1-Month Change +0.24 0.17%
3-Month Change +0.47 0.33%
12-Month Change +1.79 1.25%
Economic activity in Kentucky, as measured by the FRB of Philadelphia coincident index, grew at only 1.25% over the past year.
The FRB of Philadelphia leading index consists of variables that tend to turn down before an economic downturn or up before an economic upturn. It is one variable economists can use to forecast the future of economic activity in the state. Variables in the leading index are: the state’s coincident index, state-level housing permits (1-4 units), state-level initial unemployment insurance claims, national delivery times from the Institute for Supply Management (ISM) manufacturing survey, and the interest rate spread between the 10-year Treasury bond and the 3-month Treasury bill. The leading index is designed to provide a nine-month forecast of the state’s economic activity index. One downturn in the index does not necessarily imply recession is coming, but three successive declines might signal a recession in the next nine months.* The most recent leading index data release was on May 29, 2014 for April 2014.
April 2014 Leading Index for Kentucky:
Previous Percentage Changes in the leading index for Kentucky:
January 2014: 0.01
February 2014: -0.07
March 2014: 1.82
April 2014: 2.41
Economic activity in Kentucky, as measured by the FRB of Philadelphia leading index, is projected to have a positive growth rate of around 2.41% over the next 6 months.
This should be interpreted with caution and in conjunction with other variables. To learn more about the FRB of Philadelphia’s coincident and leading activity indexes, see Crone, Theodore M. “A New Look at Economic Indexes for the States in the Third District,” PDF Business Review, Federal Reserve Bank of Philadelphia (November/December 2000).
To keep track of these and other Kentucky economic indicators, see our Kentucky Indicators page.
*Crone (2000), Pg. 12.
Catherine Carey, Interim Director
WKU Center for Applied Economics