Most Recent Monthly Values

The chart below shows the most recent monthly values through September 2009 for the GPLI (blue bars) and the 12-month moving average (orange line).

Recent Trends in the Greater Philadelphia Leading Index

Based on the most recent monthly values for the GPLI through September, the evidence is growing that the GPR's economy will begin a gradual recovery during the winter of 2009/10, possibly during the final months of 2009 or early in 2010. At the U.S. level, the longest recession in the post-World War II era may be finally ending as suggested by the recent (October 30th) initial estimate of a 3.5% annualized growth rate in real GDP during the 3rd quarter of 2009. While some economists think that the recession may have ended during the summer of 2009, others are wary about calling it over because the 3rd quarter growth rate in real GDP was boosted by the Federal Government's various stimulus programs such as the ARRA and Cash for Clunkers. IHS Global Insight forecasts that the GPR and US economies will recover at about same time, with output recovering first, but with employment growth not resuming until well into 2010 at the earliest.

For the first time since the start of the recession in December 2007, the leading indicator turned up slightly in May 2009 and has continued to increase during the following four months as shown in the chart above. The September value of the GPLI was 97.8, up from the low values of 96.9 in March and April. In the summer release, there were only two consecutive months of a rising GPLI, but now with five consecutive months of increasing values, Select Greater Philadelphia and IHS Global Insight are more confident in predicting an economic recovery late this year or early in 2010. The two prior releases of the Leading Index had indicated that the GPR's economy was approaching a late this year. Based on this year's trends in GPLI, and because it is designed to predict economic conditions 6 months in advance, the trough will likely occur during the final quarter of 2009. The Winter 2010 release of the two indicators will hopefully show that the monthly values for the Coincident Index started to rise during the final months of 2009.

The major interventions in the US economy that began during the Fall of 2008 following the financial crisis, such as the implementation of the Troubled Assets Repurchase Program (TARP); the enactment of the American Recovery and Reinvestment Act of 2009 (ARRA), and unprecedented interventions by the Federal Reserve System in purchasing assets and guaranteeing loans began to show up more strongly during 2009q3 in some of the individual variables that comprise the GPLI and the U.S. Leading Index. As of October 30th, about $193 billion in ARRA funds had been paid out to recipients of out the total of $787 billion. The U.S. Leading Index dropped very sharply in between October 2008 and March 2009 as the credit crisis led to steep declines in economic activity in all sectors of the economy. This was confirmed when real GDP declined at an annual rate of 6.4% during the 209q1 due to precipitous drops industrial production, personal consumption, investment, and employment The slowing in the rate of decline in the US economy was confirmed when the real GDP declined at an annual rate of 0.7% during the 2nd quarter of 2009.

Trends During the Last 12 Months

In order accurately interpret the most recent month-to-month changes in the GPLI; it is helpful to examine the change in the Index over the last 12 months. An occasional month-to-month decrease in the GPLI does not necessarily signal that an expansion is ending; nor does an occasional month-to-month increase indicate that a decline is likely to end. A good way to measure sustained changes in the GPLI is to track the trends in its 12-month moving average as shown by the orange line in the chart above. When the GPLI has been consistently above its 12-month moving average, the region's economy is likely to enter a period of expansion, and when the GPGILI has been consistently below its 12-month moving average, the region's economy is likely to enter a period of declining economic growth.

For the first time since August 2007, the current monthly values of the GPLI in August and September of 2009 were above its 12-month moving average as shown in the figure above; providing additional evidence on an recovery in the GPR's economy next year. Similarly, the monthly values of the US leading index have been above its 12-month moving average since May 2009. The major reason for this difference is that US economy began to decline sooner than the GPR economy, and fell further from its pre-recession peak. For example, between the start of the recession in December 2007 and August 2009, total private-sector employment in the Philadelphia and Trenton MSAs has fallen by 4%, compared to a 6.1% decline for the US economy. Employment in the GPR also started to decline four months after it did in the US.

Methodology

The GPLI was created by determining the statistical relationship between a set of potential leading indicators and economic activity six months hence. Potential leading indicators were chosen from a collection of local, state and national variables based on their economic significance, frequency, and timeliness, and whether they acted as leading indicators. The following four were found, using multiple regression analysis, to be the best predictors of the direction of future economic activity six months ahead

• Temporary employment services
• The Philadelphia Stock Index
• The U.S. Leading Index
• Outbound export vessel trips

Regression analysis was also used to determine the statistically significant weights for each variable that were used to create the composite index. The values for three of the variables comprising the GPLI — US Leading Index, Philadelphia Stock Index, and the Index for Temporary Employment Services — have risen for at least the last five consecutive months, while the number of Outbound Vessel Trips has risen only in the last two months.