Index of Leading Indicators
Office of Economic Analysis March 29, 2010
For the six months ending in February 2010, the Oregon Index of Leading Indicators 1 increased an
annualized 28.2 percent, following a revised 24.8 percent increase the prior month. This represents the
eighth consecutive month that the index has been positive, representing a clear trend that the Oregon
economy is or will be experiencing growth in the near future. While the Index’s percent change is at its
historical high, it is important to realize the Index is designed to identify turning points in the economy
and is not constructed to illustrate the magnitude of such changes. In February, ten indicators are
registering positive values, up from eight the previous month. The only indicator currently in the negative
range is Help Wanted ads. All other indicators are positive. The largest positive contributor continues to
be the Industrial Production Index. Oregon withholding tax revenue and new Oregon incorporations
continue to be up and down, but remain largely in the positive territory. Sustained improvements in
unemployment initial claims, the Oregon dollar index, Oregon building permits and the semiconductor
book-to-bill ratio have driven the Index’s increases in recent months. Following historical patterns of the
Index, it is to be expected that employment growth will resume in Oregon in the near future.
Oregon Index of Leading Indicators
(Six-Month Annualized Percent Change, through February 2010)
Recession in Oregon
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Leading Index (L) Diffusion Index <50 Nonfarm Employment(R)
The OILI applies the Conference Board’s methodology for the U.S. National Leading Index to Oregon-specific components.
The eleven components incorporated in the OILI include: Semiconductor book-to-bill ratio, Oregon housing permits, Institute
for Supply Management’s purchasing managers index, University of Michigan consumer sentiment index, Oregon withholding,
new Oregon incorporations, Oregonian help-wanted index, Portland International Airport air freight tonnage, Oregon trade-
weighted dollar index, Industrial Production Index, and initial Oregon unemployment claims.
While the Oregon Index of Leading Indicators is a useful tool to gauge the health of the economy in the
coming six months, it is also important to determine if and when the Oregon economy experiences a
recession. Jeremy Piger, an associate professor of economics at the University of Oregon, specializes in
regional and local business cycles. Prof. Piger has developed a Markov regime-switching model 2 which
dates business cycle turning points in Oregon based on changes in the growth rate of economic variables
over time. The Office of Economic Analysis broadly defines recessions and expansions in terms of
statewide employment. Applying Prof. Piger’s model to the monthly Oregon employment report
generates a recession probability in real time. For February 2010 there is a 51 percent probability that
Oregon is experiencing an employment recession 3 .
Oregon Probability of Recession
Probability of Recession (L) Oregon Nonfarm Employment (R)
For more information on Prof. Piger’s model, please see: Owyang, M.T., Piger, J.M. and Howard J. Wall, (2005),
"Business Cycle Phases in U.S. States," Review of Economics and Statistics, 87(4), pp. 604-16.
This probability is obtained using the U.S. Bureau of Labor Statistics’ seasonally adjusted Oregon nonfarm
employment. Alternate model specifications are available. For example, Prof. Piger typically uses the state
coincident index published by the Federal Reserve Bank of Philadelphia. Using the coincident index for January
2010, the probability of recession in Oregon is 99.7 percent.