IU: Indiana economy turned in March

October 7, 2009

The Indiana economy showed signs of new life in March, but the recovery has been slow and dogged.

That’s the picture painted by a new monthly index unveiled Wednesday by the Indiana Business Research Center within the Kelley School of Business at Indiana University.

The Leading Index for Indiana suggests the state might be in for a “U”-shaped recovery rather than the “V” shape optimists hoped for, said Timothy Slaper, the economist who created the index.

“The lack of a sharp ‘V’ is probably indicative that we have something like a ‘U’-shaped recovery,” Slaper said. “The recovery is going to be slower than it has been in the past.”

The Leading Index for Indiana is designed much like the well-known Leading Economic Index churned out by The Conference Board, the management and marketplace research organization.

Like the Conference Board version, IU’s index can be used to predict economic activity four to seven months in the future. Had IU’s index been available two years ago, it might have given businesses and policymakers early warning of the recession that socked the nation, Slaper said.

The Indiana index began a steep slide in May 2007, months before the official December 2007 start of the national recession. The National Bureau of Economic Research, the economic research organization that declares when recessions begin and end, hasn’t issued a statement about the end of the current national recession, but many experts believe a recovery has begun.

The IU index does not use data specific to Indiana. Typically, state specific economic data are released after national data and the types of state data are not as detailed as those available at the national level.

Therefore, IU built its index around national figures that correlate closely to key Indiana economic sectors. Tests of the index show it would have been accurate in predicting the past two recessions, Slaper said.

The Leading Index for Indiana is composed of auto manufacturing; stocks of transportation companies, and the interest rate spread between 10-year Treasury notes and the Federal funds rate (the rate commonly used by the Fed to stimulate or cool the economy). The index also relies on a survey of purchasing managers in manufacturing companies and a survey of home-builder sentiment.


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