The State's Business Barometer
The Index of Coincident Economic Indicators (ICEI)
The Index of Coincident Economic Indicators, (ICEI) is a monthly statistic recently developed the New York State Department of Labor, Division of Research and Statistics, to provide state and local decision makers with an overview of what is happening in the State’s economy. The ICEI is really a barometer of the current climate and condition of the state’s economy taking into consideration several different business indicators in a coordinated fashion.
The index is also utilized to determine if transfers can be made by the State Division of the Budget from the State’s “Rainy Day Fund”, (a cash reserve fund established to soften the impact of downturns in the economy on the state budget), to the State’s General Fund.
Enacted in 2007 as part of budgetary reforms enacted by the Governor and the legislature, the index combines and provides weights to several business cycle indicators to provide an overview of the current condition of the state’s economy.
The index assigns weights to 4 distinct economic indicators:
Private Sector Employment 75.6 %
Average Weekly Hours in Manufacturing 13.1 %
Unemployment Rate 8.6 %
Sales Tax Collections 2.7 %
Increases or decreases in private sector employment give the clearest signals on what is happening in the economy with increased employment indicating economic growth and decreases a clear sign of economic weakness or downturn.
Average weekly wages in manufacturing gives an indication not only of the strengths or weakness of manufacturing, but gives important information about changes in personal income, since employers are more likely to reduce or add hours of work before increasing or decreasing the number of their employees.
The unemployment rates show the number of individuals unemployed, who are actively part of the labor force and seeking employment.
Each of these individual statistics are collected and analyzed by the State Labor Department’s Division of Research and Statistics, and released each month for the period ending in the preceding month.
Sales tax statistics are collected by the State Division of Tax and Finance and adjusted or “smoothed” over a seven-month period to take into account historical seasonal variations in sales tax collections. They are also adjusted for inflation utilizing the Consumer Price Index.
All four indicators are then seasonally adjusted by the Division of Research and Statistics using formulas developed by the US Bureau of the Census to take into consideration fluctuations that generally occur on a regular seasonal basis.
The indicator that results gives a clear indication of where the state’s economic trends are heading at that moment in time, since it takes into consideration several different factors, each of which contain useful information about the state’s current economic condition.
A monthly increase or decrease in the index for any given month does not indicate in itself, the onset of a period of economic growth or decline. The monthly figures are based in part on preliminary labor market data which may be revised in the subsequent month.
Under the enacted budget reforms, a downturn in the ICEI for 5 consecutive months is required before the Division of the Budget can transfer funds from the State’s “Rainy Day Reserve” to the General Fund. These transfers end when the ICEI increases for 5 consecutives months, or 12 months from when the ICEI first declined for 5 consecutive months. If the ICEI continues to decline after the initial 5 month period, the 12 month lapse date for transfers from the rainy day fund is extended for each additional month of decline in the index.
Transfers from the fund are required to be paid back in cash to the rainy day fund within 3 years from the initial transfer date.
The Index has been tested by the Division of Research and Statistics using historical data going back over 40 years. The index has shown to be an accurate indicator of economic performance, with 5 consecutive months of decline in the index occurring prior to the onset of all past recessions experienced by the state and national economies.
For additional information concerning the Index of Coincident Economic Indicators go to the Website of the New York State Department of Labor, Division of Research and Statistics :
http://www.labor.state.ny.us/workforceindustrydata/icei.shtm
