The Philadelphia Fed Incorporates a New Review ProcessThe Philadelphia Fed has released the state coincident indexes for January and February 2015. Periodically, the Bureau of Labor Statistics (BLS) undertakes a systematic review and update of many of its estimation procedures (see www.bls.gov/lau/gen4models.pdf ). The revisions this year impacted our modeling process of the coincident indexes for several states. In response, we have extensively reviewed our process and the results for all 50 states. Going forward, the Philadelphia Fed will incorporate a review process following the annual BLS benchmark revisions.
The Federal Reserve Bank of Philadelphia produces a monthly coincident index for each of the 50 states. The indexes 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.
Nonfarm payroll employment, the unemployment rate, average hours worked in manufacturing, and the consumer price index can be obtained from the Bureau of Labor Statistics.
Wages and salary disbursements (a component of personal income) and gross domestic product by state can be obtained from the Bureau of Economic Analysis.
Historical maps of the state coincident indexes from January 2005 are also available.
Crone, Theodore M., and Alan Clayton-Matthews. “Consistent Economic Indexes for the 50 States,” Review of Economics and Statistics, 87 (2005), pp. 593-603.
Crone, Theodore M. "A New Look at Economic Indexes for the States in the Third District," Business Review, Federal Reserve Bank of Philadelphia (November/December 2000).
Crone, Theodore M. "What a New Set of Indexes Tells Us About State and National Business Cycles," Business Review, Federal Reserve Bank of Philadelphia (First Quarter 2006).
Novak, Jason. "Marking NBER Recessions with State Data," Research Rap Special Report, April 2008
Stock, James H., and Mark W. Watson. “New Indexes of Coincident and Leading Economic Indicators,” NBER Macroeconomics Annual (1989), pp. 351-94.