The Iowa Leading Indicators Index (ILII) showed a 0.02% increase in nonfarm employment in May 2023 while there was an overall decrease in the index and the monthly diffusion index.
Regardless of the 26th month of growth in the nonfarm employment coincident index, long term trends in the ILII suggest that nonfarm employment will decrease over the next three to six months.
The Iowa Department of Revenue announced the May findings on July 6, with the ILII decreasing by 0.3% from April to 106.7. Monthly diffusion decreased to 18.8 in May from 25.0 in April.
The ILII is designed to forecast the future direction of economic activity in the state. A one-month movement in such an index does not produce a clear signal, rather it is necessary to consider the direction of the index over several consecutive months. A contraction signal in the ILII is considered reliable when two conditions are met:
- The index declines by at least 2% over a six-month period using an annualized rate
- A majority of the individual components decline over those six months
Seven of the eight component indicators decreased more than 0.05% over the last six months with agricultural futures profits index (AFPI), diesel fuel consumption, the Iowa stock market index, national yield spread, new orders index, residential building permits and initial unemployment insurance claims all seeing decreases.
Average manufacturing hours was the only component to increase by more than 0.05% over the last six months.
Takeaways from the May Index
Residential building permits were the only positive contributor to the ILII in May. The 12-month moving average for residential building permits increased to 994 in May from 988 in April. May permits were 0.6% above May 2022, and 15.9% above the monthly historical average based on data from 1998 to 2022.
Diesel fuel consumption and average weekly manufacturing hours went from positive contributors in April to negative detractors to the Index in May. Residential building permits went from a negative detractor in April to a positive contributor in May.
The largest detractor from the index in May was the AFPI. During May, expected profits decreased in both crop commodities and live cattle. Lean hogs were the only commodity with an expected profit increase. Compared to last year, new crop corn prices were 29.5% lower while soybean prices were 18.7% lower. The May crush margin for cattle decreased 5.8% from April while the crush margin for hogs increased 16.4%.