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October 28 1999

NOTE TO EDITORS

Enclosed is the latest issue of the New York Fed’s Second District Highlights, Two New Indexes Offer a Broad View of Economic Activity in the New York-New Jersey Region.

James Orr, Robert Rich, and Rae Rosen have developed two monthly "coincident" indexes to track the New York-New Jersey region’s current expansion and date its business cycles. Both the simple weighted index (SWI) and the estimated weighted index (EWI) combine several macroeconomic data series into one composite index to provide a more comprehensive, timely measure of the regional economy. These indexes offer a broader view of the economy than the more narrow, but frequently cited, nonfarm payroll employment series, or "job count."

Orr, Rich, and Rosen note that despite the existence of a national coincident index of the aggregate economy, there are few regional indexes. Furthermore, some series that might correspond closely with regional economic cycles typically are reported only annually and with long lags.

Many economists rely on changes in nonfarm payroll employment to track regional economic activity. Although reported monthly and for a variety of industries, nonfarm payroll employment data do not capture fully changes in the strength and direction of regional economic activity over the business cycle, according to Orr, Rich, and Rosen.

The SWI and EWI incorporate changes in nonfarm payroll employment in addition to changes in three other series: real earnings (wages and salaries), the unemployment rate, and average weekly hours worked in the manufacturing sector. When combined into a single index, these four series provide a better measure of current economic activity than any of the series alone.

Orr, Rich, and Rosen show that:

The timing and duration of regional business cycles differ from those of the national cycles.
Within the region, expansions and contractions are not reflected evenly throughout New Jersey, New York State, and New York City.
The SWI and EWI provide fuller information about the nature of the economy’s movements than does nonfarm payroll employment alone.

The work on coincident indexes lays the groundwork for the creation of broad leading indexes for the region. Orr, Rich, and Rosen are developing these measures to help predict cyclical changes in the economies of New York and New Jersey.

James Orr is a research officer and Robert Rich is a senior economist in the bank’s domestic research area; Rae Rosen is a senior economist and officer in the public information area.

Contact: Douglas Tillett

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