Leading Indicator Suggests a Gradual Economic Recovery in Greater Philadelphia

The Greater Philadelphia economy is likely to begin a gradual recovery from the current US recession during the first or second quarters of this year according to Select Greater Philadelphia's and IHS Global Insight's Leading Indicator for the Greater Philadelphia region.

The Leading Indicator, which is designed to predict the level of economic activity six to nine months from the present, has risen in seven of the last nine months, suggesting that a return to positive, albeit moderate economic growth is likely to begin in the spring or early summer of 2010. The Leading Indicator first began increasing on a month-over-month basis in April 2009, but then declined in October and November, before rising again in December, reflecting the likely tentative nature of the recovery.

The monthly values of the Leading Indicator have been above its 12-month moving average since August 2009, providing further evidence that the trough will likely occur sometime during the first quarter of 2010, and that a gradual economic recovery will follow shortly thereafter.

"The Leading Indicator in December 2009 was about 0.8 points above its level in March 2009," said James Diffley, group managing director of IHS Global Insight's U.S. Regional Services Group. "In addition, the Leading Indicator's 12-month moving average was constant during the last four months of 2009, further confirming that a recovery is imminent" according to Mr. Diffley.

The Coincident Indicator fell during the last two months of 2009 after barely rising in October, suggesting the regional economy is nearing, but has not yet passed its trough. This pattern is consistent with the tentative, gradual nature of the recovery of the US economy - a mix of both positive and negative news that shows a high level of uncertainty about where the US economy is headed this year.

"These indicators reveal what we've known for some time," said Phil Hopkins , vice president of research for Select Greater Philadelphia. "The region hasn't suffered as much as the U.S. economy by most measures during the current recession because of its economic diversity. The good news is that we expect a gradual, steady recovery to occur simultaneously with the recovery of the U.S. economy. However, sustained growth in employment is likely not to resume until the second half of 2010 at the earliest."

The Leading Indicator provides important signals about the direction of future economic conditions in the Greater Philadelphia region and was launched as part of a growing need to understand how global and national events impact the economy of Greater Philadelphia, particularly given the turbulent economic conditions of the last several years. Similarly, the Coincident Indicator was designed to gauge the current level of economic activity in the region.

A leading indicator is an economic variable that changes before the level of activity in the overall economy changes. Several individual variables that function as leading indicators are combined to produce a leading indicator. At the U.S. level, leading indicators of future economic activity include among others: interest rate spreads, consumer expectations, manufacturers' new orders for nondefense capital goods, building permits, initial claims for unemployment insurance, average weekly hours worked in manufacturing, and changes in inventories.

A coincident indicator is a measure of economic activity whose changes track closely with current changes in the overall economy. In other words, coincident indicators vary directly with movements in the business cycle. For the U.S. economy, and often for regional economies, 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.

As part of its quarterly release of the Leading and Coincident indices, Select Greater Philadelphia compiles time series data for a number of economic variables that show the performance of specific aspects of the region's economy. While most of them were not used in constructing the two indices for statistical reasons, they provide a diverse snapshot of the current performance of the region's economy.

For more news on the latest indicator please visit www.selectgreaterphiladelphia.com , go to the Regional Data link and select Economic Indicators.