NWI Index will track, forecast local economy

2012-07-27T20:00:00Z 2012-07-29T01:15:51Z NWI Index will track, forecast local economyBy Keith Benman keith.benman@nwi.com, (219) 933-3326 nwitimes.com

Three years after the end the of the Great Recession, economic activity in Northwest Indiana still is muddling along at 1992 levels with no evidence of a rapid turnaround in sight.

Those are two findings that jump out from the NWI Index, an economic chart created exclusively for the region by two professors at the School of Business and Economics at Indiana University Northwest.

"Pretty much since January, the economy has been stagnant," said Donald Coffin, emeritus professor of economics. "We just don't see a huge amount of change over the past six months."

Coffin and Bala Arshanapalli, professor of finance, devised the NWI Index during the past year to fill a critical void in data collection for the local economy. The NWI Index will be updated and published each month in the The Times and on nwi.com.

The new economic index should give business people and local governments a leg up when it comes to planning for the future, Coffin said.

"Public officials should find this interesting," Coffin said. "Anybody in the banking community should find it interesting. And anyone interested in trends in local economic development should find it useful."

The NWI Index will include both an NWI Coinicident Index, which will map the current state of the economy, and an NWI Leading Index, which will forecast likely changes in economic activity six months down the road. A Lilly Sustaining Grant Fellowship funded the project and assistance was provided by Vicki Urbanik, a post-baccalaureate student at IUN.

Until now, local business people and others have had to rely on national or state economic indexes, which don't always reflect what is happening locally, Coffin said.

The NWI Coincident Index of current business conditions devised by Coffin and Arshanapalli is made up of four variables. Three are derived from data collected nationally, with each having a particular significance for Northwest Indiana's economy. Those three are steel production, average manufacturing hours worked, and retail and restaurant sales data.

The fourth variable chosen was Gary Metro Area employment, which is directly tied to the ups and downs of the region's economy. The Gary Metro area consists of Lake and Porter counties.

"If you want to talk about the state of the economy right now in Northwest Indiana, you need to work with data that is available," Coffin said. "Then we can say if the economy is trending up or down."

In the past six months, the NWI Coincident Index has hovered right around 100. That means our economy now is operating at about the same level it did in 1992, the base year for the index, Coffin said. That reading had risen as high as 142 before the Great Recession of 2008 began and plunged as low as 52 near the recession's end in 2009.

That current reading of 100 is reflected in the employment data that is one component of the NWI Coincident Index. Total nonfarm employment in the region stood at 266,900 in June, about the same as it was in the 1994-95 period.

The second of the two indexes, the NWI Leading Index, is composed of five variables. Those are the national leading economic indexes, the Manufacturing Purchasing Manager's Index, Dow Jones Transportation Index, Housing Market Index and interest rate spreads.

"Often the more interesting thing people want to know is what will happen in the future," Arshanapalli said.

A drop of three months in a row in the NWI Leading Index would indicate the economy will slow in about six months, Arshanapalli said. Three consecutive months of positive readings would indicate the opposite.

Right now, the NWI Leading Index gives a mixed picture. The index plunged 14.39 percent in April. It dropped 1.3 percent in May. But a third consecutive drop did not materialize, with the index rising 1.05 percent in June.

"We are essentially in a standstill pattern right now," Arshanapalli said.

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