NCSU Professor Provides Monthly Economic Measuring Stick for North Carolinians

North Carolinians have a new tool for gauging the state’s economic climate — the NCSU Index of North Carolina Leading Economic Indicators.

Modeled after The Conference Board Leading Economic Index for the United States, the index gives investors and entrepreneurs a forecast of what North Carolina’s economy should look like four to six months from now.

Michael Walden, a William Neal Reynolds Distinguished Professor at North Carolina State University, said he created the index in response to a growing concern about the future of the economy.

“Given what’s happened in the economy the last two or three years many, many people — in fact more than I’ve ever experienced in my 33 years at N.C. State — are interested in what’s going on in the economy,” Walden said.

Walden writes a monthly column for Carolina Journal and gives between 80 and 100 lectures a year all around the state.

“I do a lot of economic outlook and people are always asking me what’s happening in the state economy in particular, and we didn’t have something like this for the state,” he said.

The index is comprised of five indicators that are supposed to “portend” what may be happening in the economy:

1. A national leading indicator index from the Economic Cycle Research Institute.
2. Initial claims for unemployment benefits.
3. Building permits.
4. Average weekly hours of work for manufacturing workers.
5. Average weekly earnings for manufacturing workers.

Walden said ECRI’s index has gotten “a lot of notoriety for calling the recession and the depth of it.”

A rise in first-time unemployment claims is a bad sign for the future of the economy, while a rise in the number of building permits issued is a good sign, he said. And the health of the manufacturing sector, he said, is one of the best indicators for the health of all sectors.

“Manufacturing tends to lead other sectors,” Walden said. “It tends to go down before other sectors do in a recession and tends to come back up before other sectors do in the recovery.”

The index is not infallible, Walden said.

“We try to help the best we can, but predicting the future course of the economy is extremely difficult.”

He said he was recently looking at one of his old forecasts from 2006 or 2007, in which he anticipated a downturn in 2008. He predicted that “things would feel like a recession,” but that we wouldn’t actually be in a recession.

“Obviously that was an understatement,” Walden said. “It not only was a recession, it felt like no recession we’ve seen in our lifetime.”

Walden’s June 2010 column for CJ argued the recession officially was over.

“We are in no way, shape or form to the level we were prior to the recession,” he said. “We are moving up. But we’re not that far from the bottom.”

His first report — for September (PDF download)— said the state’s economic forecast looked slightly dimmer than in August, but better than in September of last year. The numbers for October will be published at the end of November.

Sara Burrows is an associate editor of Carolina Journal.