Iowa Leading Indicators index drops again in July

Figure remains above level that would signal economic contraction

Iowa Leading Economic Indicators
The Iowa Department of Revenue building in Des Moines. CREDIT IOWA DEPARTMENT OF REVENUE

The Iowa Leading Indicators Index (ILII), decreased 0.5% to 109.6 in July compared to 110.1 in June, according to the Iowa Department of Revenue.

The monthly diffusion index decreased sharply to 25.0 in July, from 43.8 in June. It had remained at 50.0 for two consecutive months, in April and May.

The Iowa Leading Economic Indicators index is used by state officials to forecast tax revenues and the future direction of economic activity.

This is the second consecutive month since December 2021 that the monthly diffusion index fell below 50.0.

The Iowa nonfarm employment coincident index rose 0.19% in July, the sixteenth consecutive month of growth.

The ILII was created to signal economic turning points, including two key metrics that when seen

together are considered a signal of a coming economic 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 diffusion index decreased to 37.5 in July from 50.0 in June, which would typically signal an economic contraction signal. However, the annualized six-month ILII change value was -0.3%, still above the contraction signal.

As with previous months’ reports, the Agricultural Futures Profits Index (AFPI) was the strongest contributor to the ILII in July. The AFPI is calculated through the composite measure of corn and soybean expected profits, measured as the 12-month moving average of the futures price less estimated breakeven costs, and cattle and hog expected profits, measured as the average of the crush margin for the next 12 months, weighted by the respective share of Iowa annual cash receipts averaged over the prior ten calendar years. Compared to last year, new crop corn prices were 8.7% higher, while soybean prices were 0.3% percent higher, according to the report.

Residential building permits went from a positive contributor in June 2022 to a negative contributor in July 2022, while average weekly manufacturing hours went from neutral to a negative contributor.

For more on the report, visit the Iowa Department of Revenue website.