Recent Trends in the Greater Philadelphia Coincident Index
The chart below shows the most recent monthly values through September 2011 for the Greater Philadelphia Coincident Index (GPCI) (blue bars) and the 12-month moving average (orange line).
Greater Philadelphia Coincident Index
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Most Recent Monthly Values
The rate of growth in the GPR’s economy had been trending downward since last fall as shown by the monthly values of the GPCI presented below, until the sharp increase in September to 92.6. The next release of the GPCI will show whether this was a one-time change or the start of an upward trend. Since last September the y/y growth rates in total and private sector employment in the Philadelphia and Trenton MSAs have been falling so that they are now below the comparable US growth rates. In August total employment in the two MSAs was down 0.5% y/y, while private sector employment was up only 0.2% y/y, both well below the comparable US increases of 1.1% and 1.6%. Looking more closely, the minimal employment growth is due to continuing declines in the Construction, Information, Manufacturing (i.e., layoffs in pharmaceuticals and aerospace), and Financial Activities sectors; and slow growth in Professional and Business Services.
The seasonally adjusted (SA) unemployment rate in the two MSAs has risen to 8.9% in August, just below the US rate of 9.1%. The gap between the unemployment rates in the two MSAs and the US has narrowed over the last year; formerly the rate in the Philadelphia and Trenton averaged 0.6 percentage points below the US rate; the gap is now only 0.2 percentage points.
Based on recent trends in both the GPLI and the GPCI, Select and IHS Global Insight conclude that the GPR’s economy began to recover in March 2010, about nine months after the US economy. One explanation for the difference in the turning points is that the GPR’s economy didn’t start slowing until well after the US economy turned down, and trailed it coming out of the Great Recession. The gradual rate of economic recovery means, according to IHS Global Insight’s most recent economic forecasts, that the region’s total non-farm employment will not return to its pre-recession peak until the second half of 2013 at the earliest.
Trends During the Last 12 Months
In order accurately interpret the most recent m/m movement in the GPCI; it is helpful to also look at the trend in the 12-month moving average. An occasional month of downward movement in the value of the GPCI does not indicate a recession or even deteriorating economic conditions, nor does an occasional month of upward movement suggest that economic conditions are improving. When the GPCI has been consistently above its moving average, the economy is currently expanding; when it has been consistently below its 12-month moving average, the economy is experiencing a downturn. The monthly values of the GPCI began to exceed the 12-month moving average in April 2010 and did so through April 2011; but as shown above began to fall below it starting in May before jumping above it in September.
The next release of the GPCI will show whether the September reading was a one-time event or the start of an upward trend; the rise in real GDP growth in 2011q3 suggests that it may be the latter. The leveling off of the 12-month moving average line starting in the Spring of 2011 is clear evidence of the slowdown in economic growth that began in the GPR last fall.
Methodology
Global Insight was also retained to construct a Coincident Index for the GPR that shows the current direction of economic activity. For the U.S. economy, economic variables that serve as coincident indicators include, among others: employment in non-basic sectors such as trade, personal income excluding transfer payments, total employment, tax collections, passenger trips, retail sales, and even hotel occupancy rates.
The GPCI is intended to gauge the current level of economic activity in the GPR. When it displays a sustained upward trend, the Region’s economy is said to be growing; while a sustained downward indicates a declining rate of economic growth.
A coincident index requires the use of high frequency, timely data that have historically moved in conjunction with the business cycles. Global Insight used private sector employment data provided by the Bureau of Labor Statistics (BLS), available with just a one month lag for the MSA. The resulting series was converted to an index with a base year of 2000.
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