Friday, November 20, 2009

Leading Indicator Reveals Economic Recovery to Start in Greater Philadelphia by End of Winter

Posted at 4:35 PM

The Greater Philadelphia economy is projected to begin a gradual recovery from the worst recession in the post-World War II era commencing sometime in the fourth quarter of 2009, according to Select Greater Philadelphia’s and IHS Global Insight’s Leading Index for the Greater Philadelphia region.

The Leading Indicator first started to rise last May; it has now risen for five consecutive months through September 2009. The Leading Index has been indicating in recent months that the Region’s economy was probably approaching the trough of the recession as its month-over-month (m/m) declines have been decreasing.

For the first time since the start of the recession, the values of the Leading Index in August and September were above its 12-month moving average, providing further evidence that the trough is near, and that an economic recovery will follow.

"The diversity of its economic base has been the key factor in Greater Philadelphia's relative resilience during this economic crisis," said James Diffley, Group Managing Director of IHS Global Insight's U.S. Regional Services Group.

September data confirmed the rising trend of the Leading Index with a reading of 97.8, up from 97.2 in June and from the lows of 96.9 in March and April. The five consecutive months of increases in the Leading Index are in stark contrast to the nine consecutive months of declines that began in August 2008.

Though the Coincident Indicator continues to fall, its rate of month-over-month declines slowed during the third quarter of 2009, suggesting the regional economy is nearing its trough. The September 2009 value of 93.4 means that the level economic activity in the Greater Philadelphia region is 6.4% below its peak in late 2007.

According to Phil Hopkins, Vice President of Research for Select Greater Philadelphia, “the five consecutive months of a rising Leading Index through September have increased the likelihood of a gradual, modest economic recovery that will start by the end of the year. However, sustained growth in employment is likely not to resume until near the end of 2010 at the earliest.”

The Leading Index shows that the Greater Philadelphia Region’s economy has been and is expected to continue to experience a slower rate of decline than the U.S. economy. It provides important signals about the direction of future economic conditions in the Greater Philadelphia region and was launched as part of a growing need to understand how global and national events impact the economy of Greater Philadelphia, particularly given the turbulent economic climate. Finally, the Index was designed to gauge the current level of economic activity in the region.
A leading indicator is an economic variable that changes before the level of activity in the larger economy changes. Several individual variables that function as leading indicators are combined to produce a leading index. At the U.S. level, leading indicators of future economic activity include among others: interest rate spreads, consumer expectations, manufacturers' new orders for nondefense capital goods, building permits, initial claims for unemployment insurance, average weekly hours worked in manufacturing, and changes in inventory.

A coincident indicator is a measure of economic activity whose changes track closely with current changes in the overall economy. In other words, coincident indicators vary directly with movements in the business cycle. For the U.S. economy, and often for regional economies, variables that serve as coincident indicators include, among others: employment in non-basic sectors such as trade, personal income excluding transfer payments, total employment, tax collections, passenger trips, retail sales, and even hotel occupancy rates.

As part of the effort to create the leading and coincident indices, Select Greater Philadelphia compiled time series data for a number of economic variables. While most of them were not used in constructing the two indices for statistical reasons, they provide a diverse snapshot of the current performance of different aspects of the region’s economy. The current values for these variables can be found at: http://selectgreaterphiladelphia.com/data/eco_indicators.cfm

For more news on the latest index please visit www.selectgreaterphiladelphia.com, go to the Regional Data link and select Economic Indicators.