Signposts for the Economy
The Texas leading indicators index can be used to forecast changes in employment.
Some Fiscal Notes readers may turn to &ldquo:Texas by the Numbers” first; others may give them no more than a glance. But for nearly 35 years, starting when this publication was a four-page document called Financial Statement, we’ve been using tables to report on the state’s economic fortunes. This month, we’re taking a brief look back at their origins.
Financial Statement, which debuted in September 1975, was chock full of statistics on state government’s revenues, expenditures and cash position, as well as some economic data such as production figures for the then all-important oil and gas industry.
The publication evolved to become more consumer-friendly, gradually adding stories that provided explanations and context, and changing its name to Fiscal Notes in 1977.
But we wanted to give taxpayers a quick snapshot of where the Texas economy stood – and where it was headed.
That goal led to the June 1990 debut of an expanded set of economic indicators, including the “Lone Star Five,” a quintet of carefully chosen economic statistics that included measures of nonfarm employment, industrial production, retail sales and indices of consumer prices and leading indicators. Our office developed the last indicator.
“We shaped the Texas leading indicators index to forecast where nonfarm employment growth would be in four to six months down the road,” recalls Gary Preuss, an economist with the Comptroller’s Revenue Estimating Division.
Revenue Estimating created the Texas leading indicator index using a formula that combines the national leading indicator index with nine other economic indicators dealing with employment, retail sales, oil and stock prices, housing permits, new business growth and consumer confidence.
The Texas index can be used to forecast changes in employment. “It’s kind of a red flag of things to come,” says Lisele Zavala, an analyst with Revenue Estimating.
Moving with the Times
The components used in the index haven’t changed, but their weighting within the index has. Oil prices, for instance, have less impact on the index than they once did, to reflect the increasing diversification of the Texas economy.
“Oil prices were much more significant at one time,” Preuss says. “Since Texas has so many industries that are hurt rather than helped by higher oil prices today, they aren’t really as good an indicator of our employment growth now. So the weighting of these things has changed.”
The entire roster of Fiscal Notes indicators has changed over time, based on their individual relevance. For example, our indicator tracking “help wanted” advertising was dropped from the magazine at the start of 2008 because fewer employers are using printed ads to court job seekers, instead turning to online services such as Craigslist and Monster.com.
Personal income was also dropped at that time, and mortgage foreclosures have since joined the mix.
“The main reason that personal income was dropped was a lack of timeliness,” Preuss says. “The latest personal income data now available from the U.S. Bureau of Economic Analysis come out several months after the fact.
“Mortgage foreclosures were added because it was a hot topic during the subprime real estate meltdown nationally,” he says. And as the national economy completes its recessionary cycle and foreclosures return to normal levels, that statistic might be replaced with some other economic indicator.
By the Numbers
Such adjustments have continued to shape Fiscal Notes statistics over the years. Our economic tables have evolved into Tracking the Texas Economy, which now reports key economic indicators ranging from staples such as the consumer price index and the unemployment rate to the contract value of non-residential building construction and mortgage foreclosures.
All are useful, but some have greater predictive use than others. Preuss says a review of employment statistics shows that retail sales offer the closest correlation as a predictor of employment trends, probably because they involve a direct influx of money into the economy and indicate consumer optimism. FN
The Comptroller’s Texas leading indicators index has tracked the ups and downs of the state’s job count closely over the years.