Leading Index

Louisiana’s leading economic index is a generated index variable that predicts the six month ahead growth rate of Louisiana’s coincident economic index. It adds some variables to the coincident index that lead the state economy. These variables include Louisiana housing permits, state-wide initial unemployment claims, ISM survey delivery times, and the yield spread between the 10-year Treasury bond and the 3-month Treasury bill. It is calculated and reported by the Federal Reserve Bank of Philadelphia and embodies much of the same underlying data generating process.

Historical Data

The leading index is more volatile than the coincident index. It also is more sensitive to business cycle volatility. Below is the growth rate of the leading index plotted at a monthly frequency.

Like with the coincident index, the unusually large downward spike is the result of hurricane Katrina. Shortly thereafter the index decreases again as a result of the national downturn.

Leading Index Growth Rate Forecasts

Forecasts1 for Louisiana’s leading index are made from an aggregation of multiple statistical models designed to approximate the underlying data generating process of the available data. A Bayesian model averaging approach is used here to capture the joint uncertainty that any given model may be misspecified as well as to capturing the probabilistic uncertainty inherent in each individual estimate. Observed data is given in blue while forecasts are presented in orange. The weighted average of all models used is represented by the solid orange line. The upper bound and lower of the cone of uncertainty surrounding these estimates is represented by the dashed upper and lower lines respectively.

 


  1. Forecasts are provided as a convenience and for informational purposes only without any explicit or implied warranty. The authors and publishers of this post and site bear no responsibility for the information provided here and cannot be held liable for any negative consequences that may arise due its publication. Forecasting the future is inherently a tricky proposition, and all forecasts have an error term attached to them. Please exercise caution when making financial and business decisions based on the information provided. Use this information as a single input into your decisions making process.

Patrick is an assistant professor of Economics at Louisiana Tech University. He researches interest rate determination and the inflationary consequences of suboptimal monetary policy. He teaches monetary economics, research methods & macroeconomic theory.