The Iowa Leading Indicators Index (ILII) regained some momentum in October, according to the recently released Iowa Leading Indicators Index October 2021 Report.
The report, which highlights the economic activity experienced in October, indicates the index increased 0.4% in October 2021 after only increasing 0.1% in September. The index increased to 109.8 (100=1999) from 109.4 in September. With six of the eight components contributing positively, the monthly diffusion index increased to 81.3 in October, from 50.0 in September. October marks the 15th month in a row that the monthly diffusion index has registered at or above 50.0. The COVID pandemic caused the ILII to drop as low as 103.4 in June 2020 before sharply recovering to the current high. October marks the 13th month in a row since the ILII has exited contraction.
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% and a six-month diffusion index below 50.0.
With consistent positive improvements over the last year, the report suggests that employment growth will improve over the next 3-6 months. The six-month diffusion index decreased to 62.5 in October from 75.0 in September and the annualized six-month ILII change value was 4.2%. The Iowa nonfarm employment coincident index recorded a 0.15% increase in October, the seventh month of increase since February 2020. These are all good indications of a robust economic turnaround.
- The agricultural futures profits index was the strongest contributor to the ILII, with both grain commodities and both livestock commodities expecting profit gains. Compared to last year, new crop corn prices were 34.5% higher while soybean prices were 16.6% higher. The October crush margin for cattle increased 5.2% from September while the crush margin for hogs increased 12.5%.
- Residential building permits and the Iowa stock market index both went from detractors in September to positive contributors in October. The 12-month moving average of residential building permits increased to 1,208 in October from 1,177 in September. The increase of 121% in five or more units structure permits drove the increase in the year over year permit data. In October, 20 of the 30 companies in the Iowa Stock Market Index gained value, including nine of the 10 financial-sector companies. With two-thirds of the stocks experiencing gains, the index increased to 129.61 in October from 128.72 in September.
- The largest detractor from the index was the new orders index. October is the second month since June 2020 that the new orders index was a negative contributor to the index. The monthly value of the new orders index increased to 73.8 from 64.6 in September, yet was lower than the October 2020 value of 82.1. The 12-month moving average of the new orders index decreased to 74.4 from 75.1.