|Photo by Robin May|
Gregg Gothreaux, President and CEO, Lafayette Economic Development Authority
How is the local economy? In two words — still vibrant. As a community we’ve managed to harness the wildcatter mentality, creative culture and entrepreneurial spirit for which the region is known. It’s what got us to where we are today and it’s what will propel us into a successful future.
The Lafayette Economic Performance Index tracks the pulse of the local economy. Like any index, its function combines multiple data points and creates a single score that can be compared over time. This particular index tracks 15 individual local statistics, but together they illustrate a unified story about how the Lafayette economy is performing. The index is the most accurate reflection of the economy, because it is seasonally and inflation-adjusted, meaning movement in the index is based on actual changes in the economy. The EPI is also retroactively adjusted to allow for a more accurate comparison between present and past performance of the economy. This allows for an “apples to apples” comparison of where we are and where we’ve been. Because of this adjustment, the September 2012 EPI, 126.02, is the highest on record — beating the previous high of 125.98 from November 2006.
In December 2012, the Index totaled 122.54, up 5.93 points from December 2011. Although the index dipped 1.4% from November to December, it outperformed the 12-month moving average for the entirety of 2012. Since February 2011, the Index has beaten the 12-month moving average every month but one. When the Index is consistently above or below this average, it is a signal that the economy is headed in a particular direction. When the Index is steadily above the 12-month moving average, as it is now, it signals an upward turn in the economy.
Upon closer inspection, the leading, current and lagging indicators as a whole are performing well compared to the fourth quarter of 2011. When all three categories of indicators move in the same direction it means the local economy is on track for continued growth and prosperity. However, when compared to the third quarter of 2012, we did see some dips in the leading indicator data. In December, five of the six leading indicators saw declines from September numbers; but most were improved compared to December 2011.
Leading indicators are those that change three to six months prior to the overall economy showing signs of adjustment. Louisiana Average Manufacturing Weekly Hours has risen to 43.0 hours worked a week — an increase of 2.1% since 2011. The increase indicates a rise in demand for production, and if sustained, business will need to hire more workers to accommodate the higher demand.
Lafayette Average Weekly Initial Unemployment Insurance Claims are down 16.7% from December 2011; however, they increased 32.7% percent in a month-to-month comparison to November 2012. For the first time since January 2011, seasonally adjusted claims peaked over the 12-month moving average.
The Lafayette Stock Index dipped slightly from the third quarter report to 234.12. This appears to be a minor setback in the upward trend seen since August 2011. Since December 2011, the index is up 13.9%, supporting the theory that the 2011 third quarter decrease was only temporary.
Residential building permits in Lafayette city limits and in the unincorporated areas of Lafayette Parish continue to fluctuate from month to month and are down 25.8% from December 2011. Much of the residential growth in the parish has been attributed to home construction in neighboring municipalities, which are not reflected in the index. Though slow to rebound, local housing conditions are showing signs of improvement due to the vitality of the overall local economy.
In 2012, the Bureau of Safety and Environment Enforcement approved 179 drilling permits in the Gulf of Mexico — far more than the 108 permits issued in 2011. Despite some month-to-month volatility, Louisiana drilling permits were above the 12-month moving average seven months in 2012, signaling sustained improvement.
Current indicators — those that change at the same time that the overall economy shows signs of adjustment — continue to show strength in the fourth quarter. Once again, Non-Farm Employment in the Lafayette MSA (Lafayette and St. Martin Parishes) is among the strongest indicators. Since December 2011, the local workforce has added 13,500 jobs. In fact, the Bureau of Labor Statistics reported that the Lafayette MSA experienced the largest month-to-month percent growth in employment in the entire country in December — a whopping 8.6%. Area businesses have consistently added jobs since the beginning of 2010, even as other areas of the country have struggled to maintain jobs. As long as the indicators continue to improve, look for the local businesses to continue adding jobs.
Retail Sales is one of the top economic indicators because it is an indication of consumer spending and confidence. December saw more than $596 million in sales; and for the year, Lafayette retailers have reached $5.7 billion in sales — the highest annual total ever. Both November and December had sales above the 12-month moving average which undoubtedly led to the strong finish and a 6.5% increase over 2011.
Lafayette Parish Hotel/Motel Receipts in 2012 also outperformed 2011 numbers — by 14.5%. December receipts totaled $4.8 million and outperformed December 2011 by 13.6%. The performance of Retail Sales and Hotel/motel receipts indicates the strength of Lafayette’s retail and hospitality market.
Other current indicators such as Lafayette Regional Airport Enplanements and Average Home Sale Prices continue to show positive momentum. Monthly Enplanements in December (17,189), signal continued good news for the airport, which ended the year with a record-breaking 230,939 total enplanements. The Average Home Sale Price of single family homes in Lafayette is also performing well, reflecting strong performances by other indicators. Since January 2012, real estate prices increased 11.3%, and are currently beating the 12-month moving average by more than $900.
In the past year the lagging indicators — those changing three to six months after the overall economy adjusts — have begun to align themselves with leading and current indicators. In December, Lafayette’s seasonally adjusted unemployment rate was 3.7%, tied for the lowest in the state. The Unemployment Rate was one of the last indicators to recover after the recession. An unemployment rate of 4% is viewed as the natural unemployment rate and is a sign of a healthy economy.
Not only is the unemployment rate in Lafayette Parish tied for the lowest in the state (and among the lowest in the country), those individuals who are unemployed were unemployed for shorter lengths of time. In December, the average duration of unemployment in Lafayette was 14.1 weeks — 18.5% shorter than in December 2011. In addition to the positive employment indicators, the number of bankruptcies in the Western District of Louisiana has continued to improve. Following a downward trend, bankruptcies have decreased 9.5% since last December and are down 45% from the high in September 2009.
Louisiana Rig Counts are the only lagging indicator that has not shown considerable improvement in the past two years. There were 109 rigs on and offshore in December, which is down from 150 in December 2011. The continuing decline in rigs is the result of falling natural gas prices. Rapid drilling programs and enhanced recovery techniques resulted in an increase to the natural gas supply which was not met with an equal amount of demand, causing gas prices to drop to nearly $2/MMBtu. Prices averaged out to around $3.39/MMBtu in December as companies have taken it upon themselves to cut back in fields yielding the least returns.
Onshore rig counts have decreased to 62 as a result of lower counts in the Haynesville Shale. In December, the offshore rig count climbed to 47, up from the low of 14 in 2010. Though offshore and North Louisiana rig counts are sending mixed signals, the offshore rig counts are optimistic. Due to record highs in the price per barrel of crude oil, companies have reported record earnings. This should translate into more exploration and development by those companies, but ultimately the future of offshore drilling will hinge on the willingness of the government to issue permits. One rig may represent thousands of jobs and hundreds of millions of dollars in capital investment.
The Stat Tracker provides raw data for each of the 15 indicators used to create the Economic Performance Index. Local indicators are very volatile from month to month and changes should be considered with that caveat in mind. For example, retail sales will always decrease from December to January because of the end of the holiday shopping season. The index itself, along with the data represented in the graphs, is adjusted for inflation and seasonality allowing the data to be comparable over time.
• Leading Indicators change 3-6 months before the overall economy shows any signs of adjustment
• Current Indicators change about the same time as the overall economy shows signs of adjustment
• Lagging Indicators change 3-6 months after the overall economy shows signs of adjustment
Interpreting economic indicators may seem confusing, especially when dealing with local indicators that tend to be highly volatile. The month-to-month changes may not represent true changes in economic conditions. Looking at data month by month, it is clear that there have been many brief declines that have nothing to do with cyclical downturns in the economy. Indeed, if economists took every one- or two-month decline seriously, they would be forecasting a recession several times each year.
One should apply the three D’s principle in interpreting economic indicators: duration (how persistent has the change been), diffusion (how widespread is the change) and depth (how large is the change). The longer the weakness continues, the deeper it gets and the more widespread it becomes, the more likely a recession will occur.
The Stat Tracker reports raw data, unadjusted for seasonality and inflation. With that being said, an increase in the unemployment rate from December to January does not mean much because every year it increases due to the loss of seasonal holiday employment. In the same way, a home sold for $200,000 in 2003 is not the same as one sold for the same dollar amount in 2011 because of inflation. For this reason, the index itself along with the graphs in this report reflects data that has been adjusted for seasonality and inflation. Doing so enables autonomous comparison over time.
• Lafayette Stock Index: Considered a leading indicator because changes in stock prices reflect investor’s expectations for the future of the economy. The eight companies tracked for the index represent some of the largest economic drivers in the community that add hundreds of millions of dollars to parish GDP. (LHC Group, Home Bancorp, Iberia Bank, PHI, MidSouth Bancorp, Petroquest Energy, Teche Holding Company and Stone Energy)
• Average Weekly Initial Unemployment Insurance Claims: The initial jobless-claims data is more sensitive to business conditions than other measures of unemployment. A healthy job market reflects a healthy economy— more people working means more disposable income, which leads to higher personal consumption and gross domestic product (GDP). Most economists agree that a sustained change (as shown in the moving averages) is the benchmark for real job growth or job loss in the economy.
• New Residential Building Permits: Building permits mean future construction; and construction moves ahead of other types of production, making this a leading indicator. People buying new homes also tend to spend money on other consumer goods such as furniture, lawn and garden supplies, and home appliances. According to the Census Bureau, investors should look past volatile month-to-month results and study more closely the forming patterns.
• Louisiana Manufacturing Average Weekly Hours: If demand for production rises, employers ask their workers to work more hours and put off hiring additional workers until they are sure the increased demand is long-term. If demand for production holds up, businesses will need to hire more workers, signaling a growing economy. Conversely, if demand for production slows, employers ask workers to log fewer hours before laying them off.
• Louisiana Drilling Permits: Much like residential building permits, this is a leading indicator because it represents future production, jobs and income. Because the energy industry plays such a large role in the overall performance of the local economy, it is important to track this statistic that may help predict future economic growth or contraction.
• Lafayette Average Home Price: Measures of home price are used in identifying housing bubbles. Month-to-month changes are not significant, but continuing trends over many months can symbolize a change in the housing market.
• Lafayette MSA Non-Farm Employment: It is the benchmark labor statistic used to determine the health of the job market because of its large sample size and historical significance in relation to accurately predicting business cycles.
• Lafayette Parish Retail Sales: Historically, retail sales are 40% of Personal Consumption Expenditures, which in turn make up two-thirds of the Gross Domestic Product (GDP). Retail sales are an indication of consumer spending and confidence.
• Lafayette Parish Hotel/Motel Receipts: Like retail sales, this is a current indicator in that activity reflects the current state of the economy. The importance of hotel/motel receipts comes from tracking outside visitors to the area and the money they bring with them, whether it is an individual business traveler, leisure traveler or a group.
• Lafayette Regional Airport Enplanements: Changes in the number of passengers coming into the airport reflect the local and national economy and people’s willingness to spend money on an expensive form of travel. Increases to enplanements can also signal more infrastructure, flights, or airlines which show the strength of the local and non-local demand for flights.
• Rig Counts: Decisions about rigs are made in response to economic conditions, government policies and other variables such as prices. In a business where one rig could signify thousands of jobs and tens, if not hundreds or millions of dollars in capital investment, rig counts are an important indicator to follow.
• Louisiana Average Unemployment Duration: This lagging indicator shows how persistent the current change in the economy has been. As recessions get underway, unemployment increases and hiring slows, both of which tend to increase unemployment duration; however, a sudden mass layoff could decrease duration due to the large influx of newly unemployed workers.
• Lafayette Parish Unemployment Rate: Considered a lagging indicator, as people tend to be out of work when problems in the economy have already manifested themselves in falling economic output.
• Western Louisiana District Bankruptcies: Individuals and businesses tend to file for bankruptcy after a prolonged period of indebtedness.
Editor’s Note: access Gregg Gothreaux’s full EPI report and analysis online at www.acadianabusiness.com/EPI