Federal Reserve Bank of Philadelphia’s coincident indexes for states decreased in nine states

The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for May 2012. In the past month, the indexes increased in 34 states, decreased in nine states, and remained stable in seven states, for a one-month
diffusion index of 50. Over the past three months, the indexes increased in 47 states and decreased in three states (Alaska, Maine, and Mississippi), for a three-month diffusion index of 88. For comparison purposes, the Philadelphia Fed has also
developed a similar coincident index for the entire United States. The Philadelphia Fed’s U.S. index rose 0.2 percent in May and 0.6 percent over the past three months.

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The Federal Reserve Bank of Philadelphia’s monthly coincident index are released a few days after the Bureau of Labor Statistics (BLS) releases the employment data for the states. The Bank issues a release each month describing recent trends in the state indexes, with special coverage of the three states in the Third District: Pennsylvania, New Jersey, and Delaware.

The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.

A dynamic single-factor model is used to create the state indexes. James Stock and Mark Watson developed the basic model for constructing a coincident index for the U.S. Theodore Crone and Alan Clayton-Matthews adapted the basic model for the states. The method involves a system of five major equations: one equation for each input variable and one equation for an underlying (latent) factor that is reflected in each of the indicator (input) variables. The underlying factor represents the state coincident index. The model and the input variables are consistent across the 50 states, so the state indexes are comparable to one another.

via State Coincident Indexes – a monthly coincident index for each of the 50 states – Philadelphia Fed.