Iowa Leading Indicators Index: June 2021 Report

Iowa Capitol

The Iowa Department of Revenue released the Iowa Leading Indicators Index June 2021 Report and Memo this morning. The Iowa Leading Indicators Index (ILII) increased to 108.9 in June 2021 (100=1999) from 108.5 in May, up 0.4%. June is the eleventh month in the last twelve months that the index has increased. With four of the eight components contributing positively, the monthly diffusion index fell to 50.0 in June, from a revised 81.3 in May. June marks the eleventh 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 103.2 in June 2020 before sharply recovering to the new high

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 percent and a six-month diffusion index below 50.0. With consistent positive improvements over the last nine months, this report suggests that employment growth will improve over the next 3 to 6 months. However, the recovery may be losing a little bit of momentum, the pace of gains in the ILII has declined since peaking in March. The six-month diffusion index remained unchanged at 87.5 in June from May and the annualized six-month ILII change value was 8.8%. The Iowa nonfarm employment coincident index1 recorded a 0.36% increase in June, the third month of increase since February 2020. These are all good indications of a robust economic turnaround.

Seven of the eight component indicators (agricultural futures profits index, average weekly unemployment claims (inverted), diesel fuel consumption, the Iowa Stock Market Index, the national yield spread, the new orders index, and residential building permits) experienced an increase of greater than 0.05% over the last half-year.

Four of the eight components increased in June: diesel fuel consumption, average weekly unemployment claims (inverted), the agricultural futures profits index, and the new orders index. Taxable diesel gallons were 65.17 million gallons in June 2021, 12.2 percent higher than the 58.07 million gallons recorded for June 2020. The 12-month moving average of diesel fuel consumption increased to 65.27 million gallons in June from 64.68 million in May. There is a growing demand for the transport of manufacturing inputs and final products.

The 12-month moving average of weekly unemployment insurance claims decreased to 5,413 in June from 5,970 in May. Average monthly claims have declined 76.4% from last June, and are 35.6% below the monthly historical average (1988-2020). Weekly unemployment insurance claims have improved dramatically from their unprecedented highs of March and April 2020. The sharp increases in unemployment insurance claims from a year ago are rolling off of the 12-month moving average, suggesting further improvements. The Bureau of Labor Statistics reported that the Iowa unemployment rate (a coincident indicator) increased slightly to 4.0% in June from 3.9% in May. The state’s jobless rate was 7.1% one year ago. The U.S. unemployment rate increased to 5.9% in June 2021 from 5.8% in May.

The agricultural futures profits index showed an increase, with both grain and livestock commodities expecting profit gains. Compared to last year, new crop corn prices were 67.7% higher while soybean prices were 56.6% higher. The June crush margin for hogs increased 0.4% from May while the crush margin for cattle increased 2.5%.

The June 2021 monthly value of the new orders index increased to 74.1 from 72.7 in May, and was substantially higher than the June 2020 value of 50.2. The 12-month moving average of the new orders index increased to 75.5 from 73.5.

Average manufacturing hours, the Iowa Stock Market Index, the national yield spread, and residential building permits are the four components that contributed negatively to the index. The 12-month moving average of manufacturing hours decreased to 40.0 in June 2021 from a revised 40.1 in May 2021. June 2021 average hours were 39.7, below the 40.9 hours in June 2020, and nearly two hours below the historical monthly average (1996-2020).

In June 2021, only 13 of the 31 companies in the Iowa Stock Market Index gained value, including 4 of the 11 financial-sector companies. With just over one-third of the stocks experiencing gains, the index decreased to 126.65 in June from 130.76 in May. losses experienced by Wells Fargo Financial, Deere and Company, Tyson Foods, ConAgra,  and Principal Financial Group contributed to the fall in the index.

During June, the yield spread contracted to 1.48% from 1.60% in May. The long-term rate decreased 10 basis points while the short-term rate increased 2 basis points. June marks the second contraction of the yield spread in a row representing potentially weakening confidence in financial markets for long-term economic growth. June 2021 is also the sixth month in a row since June 2018 that the yield spread has been at or above 1.0%.

June 2021 residential building permits were 4.1% below June 2020 (1,359 vs 1,417), yet 15.0% above the historical average for June (1998-2020). The 12-month moving average of residential building permits decreased to 1,226 in June from 1,231 in May. The decrease of 11.6% in single-family housing permits drove the reduction in the year-over-year permit data.

The monthly Iowa Leading Indicators Index report is available on the Department’s website.