Average Weekly Manufacturing Hours

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Total Non-farm Employment for Gary Metro

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U.S. Retail Sales and Food Services in Millions

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Raw Steel Production (in Tons)

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Percentage change in index of leading indicators (six-month forecast)

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The NWI Index

Coincident and leading indicators for Northwest Indiana
Developed by the Indiana University Northwest School of Business and Economics

• Bala Arshanapalli, professor of finance and Gallagher-Mills Chair of Business, School of Business and Economics, Indiana University Northwest
• Donald Coffin, professor emeritus of economics, School of Business and Economics, Indiana University Northwest
• Vicki Urbanik, Indiana University Northwest student in the post-baccalaureate certificate program
• Lilly Sustaining Grant Fellowship supported this research.

What is the NWI Index?

The Indiana University Northwest School of Business and Economics developed the NWI Coincident Index to accurately gauge the dynamics of our region's economy. Think of it as a monthly “snapshot“ to measure our region's progress. Are we expanding? Contracting?

The team also developed the Northwest Indiana Leading Indicator, a forecast how the NWI Coincident Index will change in the next six months. These indices are then used to estimate the probability of an upcoming change in the region’s economic activity.

How is the NWI Coincident Index calculated?

The NWI Coincident Index is made up of four components, which are a mix of local and national data key to the local economy:

1. Steel production: Two major steel firms, ArcelorMittal and U.S. Steel, are housed in Northwest Indiana. Since the availability of firm level production data is limited, the national data supplied by American Iron and Steel Institute are used.
2. Local employment: The employment data for the region are maintained by the Indiana Department of Workforce Development. Total nonfarm employment data for the Gary Metro area, which consists of Lake and Porter counties, are used as the second component.
3. National retail and food sales: Retail sales and restaurants are a significant component of the local economy, accounting for 20 percent of total local employment in May 2012. Due to limited availability of regional data, the NWI Coincident Index uses national retail sales and food services data from the Thomson Reuters Datastream database.
4. Manufacturing hours worked: Historically the economic base of Northwest Indiana has been manufacturing. So the average weekly manufacturing hours worked obtained from the Bureau of Labor Statistics is included as the final component.

The NWI Coincident index is a weighted average of those four variables with weights that vary inversely with how volatile they are.

What time periods are measured?

The NWI Index measures economic data from January 1992 onward. That year was the first year that local employment data was available. The index will be updated monthly.

What does the NWI Index tell us?

The chart of the NWI Index reveals several issues. First, after a significant growth in 1990s, the region’s growth has been stagnant in the last decade. The level of Northwest Indiana’s index in 2012 is at about the same level as in 1992.

Second, the region’s economy started slowing down in early 2000 much before the nation’s economy and the region experienced deeper and longer recession than the U.S. economy. For Northwest Indiana, the peak in the index occurred in April 2000 and the downturn lasted through February 2002.

Finally, the timing of the region’s last downturn is roughly similar to that of nation’s downturn. The recent downturn started in May 2008 and lasted through May 2009.

The NWI Leading Index

The NWI Leading Index is used in predicting the likelihood of impending expansion or contraction of Northwest Indiana economy.

To predict six-month economic growth of Northwest Indiana, the IUN team used a set of leading economic variables, including past changes in the national leading economic and coincident indices, the Manufacturing Purchasing Managers Index (PMI), the Dow Jones Transportation Index, the Housing Market Index and Interest Rate Spreads. The region and national economies tend to have similar cyclical patterns.

Warning Signs

If the NWI Leading Index is providing a timely and useful signal of shifts in business cycle phases, then a negative reading should precede the onset of a recession, and vice-versa.

In general, three consecutive monthly drops in The NWI Leading Index would signal an upcoming recession. Three straight increases would signal an expansion.

The Northwest Indiana Leading Index turned negative in October 2000 and remained negative until May 2001. The National Bureau of Economic Research dated February 2001 through November 2001 as recession. Likewise the Northwest Indiana Leading Index turned negative in June 2007 and remained negative until February 2009, well in advance of the impending great recession of December 2007. In addition, the leading index showed an upturn prior to the start of the expansion in the early 1990s and in 2009.