State Coincident Indexes

The Federal Reserve Bank of Philadelphia produces a monthly coincident index for each of the 50 states. The indexes are typically released a few days after the Bureau of Labor Statistics (BLS) releases the employment data for the states. (The BLS releases its January estimates along with the annual benchmark revisions around mid-March. Our January release follows about two weeks later after we re-estimate all 50 state models.) The Bank issues a release each month describing recent trends in the state indexes, with special coverage of the three states in the Third District: Delaware, New Jersey, and Pennsylvania.

The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing by production workers, the unemployment rate, and the sum of wages and salaries with proprietors’ income (two components of personal income) deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.

A dynamic single-factor model is used to create the state indexes. James Stock and Mark Watson developed the basic model for constructing a coincident index for the U.S. Theodore Crone and Alan Clayton-Matthews adapted the basic model for the states. The method involves a system of five major equations: one equation for each input variable and one equation for an underlying (latent) factor that is reflected in each of the indicator (input) variables. The underlying factor represents the state coincident index.