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Philly Fed Leading Economic Index Suggests Expansion Across 100% of the Nation

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    March 30, 2014

    On Monday, the January release of the Philadelphia Fed’s State Leading Economic Index came out for all 50 states of the nation. The leading index is a six-month forecast for the state coincident indexes and the January data showed that all 50 states are expected to see their coincident indexes rise over the next six months.

    This would be an improvement in the coincident data for January which showed that the coincident indexes increased in 48 states and remained stable in two.

    january 2014 state coincident index
    Source: Philly Fed

    Not only are more states expected to grow over the next six months compared to growth in January, but the economic growth in most states is set to accelerate. You can visually see this when looking at the above chart of coincident economic growth rates compared to the  leading index chart below in which there are far more dark green states (growth > 1.5%) than in the coincident figure above and even two blue states (growth > 4.5%).

    expected six-month change state leading indexes
    Source: Philly Fed

    In addition to a diffusion index for all 50 states the Philly Fed also calculates a national economic leading index that aggregates the individual state data where economic growth is seen by numbers greater than zero while economic contractions are associated with readings below zero. The reading for January came in at 1.33 and comfortably sits above zero.

    The January data for the state leading indexes is important on several fronts. First, it tells us the risk of a recession remains low as readings below zero on the national index are associated with recessions and readings below 0.75 serve as a recession warning. This can be seen below as the zero reading often bookends recession dates while readings south of 0.75 give several months of warning of a coming recession.

    philly fed state leading index
    Source: Bloomberg

    The other important issue is that it tells us economic growth remains strong and robust across the nation and that once we get past the recent cold weather the economy should accelerate, as should the stock market. As long as the national Philly Fed State Leading Index remains above 0.75 the economy and stock market bulls should be given the bullish benefit of the doubt.

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    Images: via Flickr (licence attribution)

    About The Author – Chris Puplava, Financial Sense Online

    Chris graduated magna cum laude with a B.S. in Biochemistry from California Polytechnic State University, San Luis Obispo. He joined PFS Group in 2005 and is currently pursuing the designation of Chartered Financial Analyst. His professional designations include FINRA Series 7 and Series 66 Uniform Combined State Law Exam. He manages PFS Group’s Precious Metals Managed Account, Energy Managed Account, and Aggressive Growth Managed Account. Chris also contributes articles and Market Observations to Financial Sense and co-authors In the Know—a weekly communication for Jim Puplava’s clients only—with other members of the trading staff. Chris enjoys the outdoors.


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