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Leading Indicators

The Index tracks four leading indicators to get a sense of the direction of change in the county economy in the near future. The four leading indicators are (1) number of claims for unemployment insurance, (2) help wanted advertising, (3) building permits, and (4) manufacturing orders. The graphs in this section use a four-month moving average of seasonally adjusted index values in order to "smooth" ordinary month-to-month volatility and reveal underlying trends.

Graphic description: The seasonally adjusted Index of Claims for Unemployment Insurance is represented above by the blue area.  The red trendline shows a four month moving average which "smoothes" month to month volatility.

The Index of claims for unemployment insurance is an indicator of negative economic activity.  This leading indicator increased by 8.9 percent in March, indicating an increase in unemployment in the future. The Index of claims for unemployment insurance now stands at 58.0.  This is still a relatively low value, especially when compared to March of 2004 when the Index stood at 125.2.  The four month moving average indicates that overall unemployment activity is fairly static.
 

Graphic description: The seasonally adjusted Index of Help Wanted Advertising is represented above by the blue area.  The red trendline shows a four month moving average which "smoothes" month to month volatility.

The Index of help wanted advertising is an indicator of labor market conditions and job creation.  This Index is based on help wanted advertisements posted in the Times-Standard.  In March the number of help wanted advertisements increased by 9.0 percent to an Index value of 170.2.  The four month moving average continued to exhibit a steady upward trend with an average value of 149.9.   This indicates continued job growth in Humboldt County.

Nationally, the Conference Board's help wanted advertising Index reported a decline of two percentage points, following February and January's high.  March's Index value of 39 is the same as the Index value for March of 2004.  The Conference Board Economist Ken Goldstein says: “Clearly something has changed sharply and suddenly. What appears to have developed is a renewed business caution on stepping up investing and hiring plans. With cost increasing in 2005 for materials and labor, the key question has been whether executives can push prices up enough to keep pace with costs. Fears that they may not be able to accomplish that have turned hiring plans very cautious again.”   (conference-board.org)

Graphic description: The seasonally adjusted Index of Building Permits is represented above by the blue area.  The red trendline shows the four month moving average which "smoothes" month to month volatility.

The Index of building permits issued gives insight to future home sales and construction.  In March the Index of building permits continued last month's decline, dropping 34.6 percent to an Index value of 49.6.  Since this measure experiences a great amount of month to month variability, the four month moving average is used to determine longer term trends.  As depicted in the graph above, the moving average has begun to reflect the two months of decline seen in the actual Index values.   The four month moving average currently stands at 68.4, 18.9 percent higher than the actual Index value.

The National Association of Realtors (NAR) also reports a leading indicator of the housing market, The Pending Home Sales Index.  This Index is based on a broad sample of sales-contract activity.  In March the national home sales leading indicator dropped just 0.3 percent.  According to NAR's chief economist, even though activity looks to be slowing, expectations are still high when compared to the same period last year, and any contractions this month serve to balance the strong activity we've seen recently.  (realtor.org)

Graphic description: The seasonally adjusted Index of Manufacturing Orders is represented above by the blue area.  The red trendline shows the four month moving average which "smoothes" month to month volatility. 

The Index of manufacturing orders shows expectations for future manufacturing sales.  This Index jumped 28.5 percent in March to an Index value of 75.3. This increase is as a reversal of the last two month's decline, and serves to level the fourth month moving average.  The average of the last four months of manufacturing orders now stands at 80.1, and is down slightly from last month. 

Nationally, the U.S. Census Bureau reports a 2.8 percent decrease in manufacturing orders for durable goods and a 0.2 percent increase in new orders for general manufactured goods.  (census.gov)

Individual Sectors

Home Sales

Statewide home prices are also on the rise, increasing 5.2 percent in March to $495,400.  This represents a 15.7 percent increase in the median home price for the same period last year.  The state sales index increased 7.5 percent when compared to March of 2004.  This indicates another strong year for the California housing market, in part dependant on California growing as a state.  “Year-to-date sales are 6 percent ahead of last year’s pace, reflecting the continued strength of the real estate market and the improving economic fundamentals of the California economy,” said C.A.R. Vice President and Chief Economist Leslie Appleton-Young. “Demographic growth in the state’s population also is fueling much of this activity -- California has absorbed three million new residents since 2000.”  (car.org)

Nationwide home sales were strong as well.  The seasonally adjusted number of homes sold rose 1.0 percent in March to 6.89 million, while sales increased 4.9 percent compared with last year at this time.  The national median home price rose 11.4 percent from March of 2004 to $195,000.  David Lereah, NAR’s chief economist, said economic improvements have been supporting the housing sector. “With mortgage interest rates remaining historically low, gains in the labor market and economic growth appear to have lifted the confidence of home buyers,” he said. “There’s no question there is a strong demand for housing from a growing population.”  (realtor.org)

According to the country's largest mortgage company, Freddie Mac, the nationwide average for a 30-year fixed rate mortgage as of April 28th was 5.78 percent with an average 0.6 points.  This is down from last month's mortgage rate of 6.04 percent.  In April of 2004 the 30-year fixed rate mortgage averaged 6.01 percent.  “The market was disappointed on the news of lower consumer confidence and lower orders for durable goods," said Frank Nothaft, vice president and chief economist. "These numbers suggest that the Fed will remain restrained in its practice of raising short term rates, which may be an indication the Fed doesn't see inflation to be as great a threat as the markets previously had thought it would be.” (freddiemac.com)

Enthusiasm for growth in the home sales sector is often tempered with concerns about housing affordability.  This is clearly and issue in Humboldt County, as we at the Index have recorded several record setting median home prices, in both real and nominal terms.  According to a study conducted by the Center for Housing Policy and funded by Freddie Mac, the number of working families in the United States who spend more than half of their income on housing has grown from 2.4 million in 1997 to 4.2 million in 2003.  This is a 76 percent increase in less than a decade.    The study classifies 14.1 million American families as having 'critical housing needs' in 2003.  The study also found that the majority of working families with critical housing needs are immigrant families.   "These new findings help shed light on a troubling trend across America – working a full-time job does not guarantee families a decent, affordable place to live," said Barbara Lipman, research director for the Center for Housing Policy. "In fact, the housing problems of working families are more persistent and pervasive than many experts may have thought, and are not only confined to cities, renters, or the East and West coasts."  (freddiemac.com)

Visit Freddie Mac for more information, or click here for the full report.

Retail Sales

National retail sales, as reported by U.S. Census Bureau, increased slightly in March. Seasonally adjusted sales were $339.3 billion, an increase of 0.3 percent (±0.7%) from the previous month and up 5.8 percent (±0.8%) from March 2004.  Total sales from January through March 2005 were up 7.2 percent (±0.7%) from the same period a year ago.  (census.gov)

Looking to the future, the Conference Board's Consumer Confidence Index declined again in April.  This is the fourth consecutive month of decline in consumer confidence. “Less robust current conditions and a more cautious outlook have consumers feeling less confident in April than in March,” says Lynn Franco, Director of The Conference Board’s Consumer Research Center. “Looking ahead, consumers do not anticipate an improvement in economic growth nor in their incomes. And, they expect an even tighter job market over the summer months.”  The Consumer Confidence Index now stands at 97.7 (1985=100), down from 103.0 in March and 104.4 in February.  (conference-board.org)

Hospitality

The hospitality sector continued to grow in March, increasing 2.7 percent from February's value to 92.1.  This is the third consecutive month the hospitality sector has seen growth.  This most recent figure is also up 5.4 percent from the Index value form the same time last year, and up 5.3 percent from March of 2003.  Please note that the index numbers are seasonally adjusted and relate back to the base month January 1994.   This seasonally adjusted index is different from raw occupancy rates, as the expected seasonal variation is removed so that changes over time can be compared more appropriately.  The twelve-month moving average, indicated by the red trend line, shows that while the hospitality sector fluctuates from month to month beyond seasonal variability, the overall trend is one of consistency.  In the last four years the twelve-month moving average has not dropped below 90.0 or reached above 100.0 in four years.

Nationally, The Federal Reserve Board indicated strong tourism spending reported by several financial districts including San Francisco.  The Federal Reserve indicated that tourism spending was strongly linked to favorable weather.   (federalreserve.gov)

Gasoline Prices

Average Price* (as of 4/12)		Change From Prev. Month (cents/gal.)
Eureka	$2.82	40¢
Northern Ca	$2.62	34¢
California	$2.63	35¢
Current average price per gallon of self-serve regular un- leaded gasoline as reported by the American Automobile Association's monthly gas survey (www.csaa.com).

Electricity Consumption

Total County Employment

The Index value of the employment sector is based on seasonally adjusted total employment as reported by the Employment Development Department.

In March's preliminary employment and labor force report, the EDD reported 57,900 people employed in Humboldt County.  This is a net gain of 600 job from February's revised number. The total civilian labor force increased by 100 people to 61,700. The seasonally adjusted total county employment Index rose by just 0.7 percent, and now stands at 107.5.  This is a 3.4 percent increase from the same period last year. 

Sectoral changes in Humboldt County employment:

• Overall the service sector posted a net gain of 700 jobs in March.
  
• Wholesale Trade gained 100 jobs.
• Real Estate, Rental, and Leasing Services gained 100 jobs.
• Education and Health Services gained 100 jobs.
• Food Services and Drinking Places gained 100 jobs.
  
• Local Government gained 100 jobs.
• State Government gained 200 jobs.

• Overall goods producing employment gained 300 jobs in March.
• Wood Product Manufacturing gained 200 jobs.
• Construction gained 100 jobs.
  

Lumber Manufacturing

In March lumber based manufacturing declined further to an Index value of 87.8.  This represents a 5.3 percent contraction from February's figure and a 16.3 percent contraction from January's figure.  The four month moving average has leveled out to 97.3.  This month's value represents a 2.6 percent increase from March of 2004.

National economic activity in the manufacturing sector, as measured by the Institute of Supply Management, registered 53.3 percent on May 2nd.  A number over 50 indicates growth.  This is the 23rd consecutive month of growth, although manufacturing growth has slowed consistently over the past four months.  "February was another good month in the manufacturing sector. While the overall rate of growth is slowing, the overall picture is improving as price increases and shortages are becoming less of a problem. Exports and imports remain strong. The recent trend of inventory growth reversed direction during February; this reduces possible concerns about involuntary inventory build. Customers' inventories declined slightly, reinforcing the probability that inventories are not yet a concern." said Norbert J. Ore, C.P.M., chair of the Institute for Supply Management.  (ism.ws.cfm)

According to a recent article in the San Francisco Chronicle, the slowed pace of national manufacturing is generally good news; many economists concerned with inflation feel this slowing could indicate a cooling of the economy necessary to balance out inflationary  pressure.   Douglas Porter, deputy chief economist at BMO Nesbitt Burns, said "you could make the case that manufacturing activity had been running too hot for comfort for the past year or so.  We would have had serious inflationary pressure had the manufacturing sector kept growing at that pace," he added. Now, he said, the U.S. economy appears to be on track to expand at a sustainable rate.  (sfgate.com)

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The Bigger Picture

Explanatory Note: For those of you who are new or less familiar with the Index, we have been tracking economic activity since January 1994. The composite indices plotted as blue and red lines in the diagram at the top of this page are weighted averages of each of the six sectors described in the table above. Each sectoral index, and the composite index, started at a value of 100 in 1994. Thus if the retail sectoral index value is currently 150, that means that (inflation-adjusted) retail sales among the firms that report data to us are 50 percent higher than in January 1994. We also seasonally adjust each sector, and the composite index, to correct for "normal" seasonal variation in the data, such as wet season vs. dry season, and so trends in the seasonally-adjusted composite index provide a better indication of underlying growth and fundamental change in the economy. Each month's report reflects data gathered from the previous month.  For example, the "August 2003" report reflects data from July 2003.  As is common, our initial report is preliminary, and as we receive final data we revise our reports accordingly.

Cited References

American Automobile Association

California Association of Realtors

The Conference Board

Dow Jones Newswires

Energy Information Administration

The Federal Reserve Board's Beige Book

Freddie Mac

Institute of Supply Management

National Association of Realtors

The San Francisco Chronicle

The Wall Street Journal

University of California Energy Institute

U.S. Bureau of the Census's home page

U.S. Bureau of the Census's Economic Briefing Room

U.S. Bureau of Labor Statistic

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Copyright © 2005 Erick Eschker