The document summarizes a presentation by Travis Fling, Chief Economist at the Madison County Chamber of Commerce, on current leading economic indicators and unemployment. Fling discusses national and global economic factors, components of the US economy like GDP and consumer spending, leading economic indicators for the US, Ohio, and Madison County, and offers advice to business owners on managing through the economic recession.

1. A Local Look at the
National Economic
Picture:
Drilling Down
Travis Fling
Chief Economist
Madison County Chamber of Commerce
June 2010

2. Current Leading Economic
Indicators and Unemployment

3. Approach Shots
• Each topic of discussion – LEI’s and
Unemployment
• Why it’s important
• How it works
• Present the Data Set
• Discussion
• Subsequent Presentations
• Previous topics current data
• New topics of discussion

4. Current Macroeconomics
• Euro Zone currency/lending issues
• Hungary
• Germany’s bear/bull debate
• Initiated ban on naked short selling
• Spain and Portugal
• China’s “Protect 8” and currency appreciation
• Japan’s Housing bubble
• 30 year fixed money under 5%, Prime at 3.25%, 3 month
Treasury at .15%
• One would think tighter credit standards have prevented unprecedented
capital investment
• Surveys from NFIB cite uncertainty of sales revenue as reason

5. Components of Our Economy
• Gross Domestic Product is Currently at 14,601.4
• National Income comprised of several factors
• Consumer Spending – 9368.7
• Investment Spending – 1628.8
• Government Spending – 1144.8 (Fed) + 1785.9 (State)
• Net Exports – is 1956.6 exports and 1564.2 imports net – 392.40
• Numbers are in Billions of today’s USD.
• GDP Per Capita approximately 46,442 in 2009
• Each Factor is adjusted by it’s Multiplier
• Multiplier is typically a polynomial multivariate function, whose derivatives
tell us the slope and affect of exogenous variables such as monetary and
fiscal policy.

6. 1 1 b d
Y z (a c) G T r
1 b 1 b 1 b 1 b
Derivatives of GDP Components
• Taking derivatives of the function tells us the
rate of change and slope of the function.
• This shows maximization and elasticity
inflections.

7. Economic Indicators
• Applied research on the effects of multipliers on
specific indicators determine consistency
• Consistent indicators tracked to determine efficacy
• Derivatives show whether indicator is leading,
lagging, current, and its cyclical nature.
• Forecasting uses leading, pro-cyclical and counter
cyclical indicators.
• Pro-Cyclical will rise, relative in scope, approximately 6-12
months prior to GDP fluctuations.

8. Leading Economic Indicators
Leading Economic Index Factor
• Average weekly hours, manufacturing 27.25%
• Average weekly initial claims for unemployment insurance 3.22%
• Manufacturers' new orders, consumer goods and materials 8.09%
• Index of supplier deliveries – vendor performance 7.15%
• Manufacturers' new orders, nondefense capital goods 1.92%
• Building permits, new private housing units 2.63%
• Stock prices, 500 common stocks 3.73%
• Money supply, M2 32.48%
• Interest rate spread, 10-year Treasury bonds less fed funds 10.58%
• Index of consumer expectations 2.95%
Sept. Oct. Nov. Dec. Jan. Feb. March
Leading index 104.2 104.7 105.8 107.1 107.7 108.1 109.6
Percent change 1.1 .5 1.1 1.2 .6 .4 1.4
Data from St. Louis Federal Reserve Board – April 2010

9. Yield Curve as a Leading Indicator
• Interest rate spread between 10 year treasury
note and 3 month treasury bill
• Originally discovered by Mishkin and Estrella
• Pits the best minds of the Federal Reserve
against the efficiency of the free market
• Spreads Expected Inflation, Capital Investment

10. Unemployment
• Labor force in the United States of 154.5 Million
• Structural Unemployment
• Result of Labor Market Dynamics
• When Labor force requires differing skill set required by
Employers
• Can be hedged through training and development
• Frictional Unemployment – typically 2-3%
• “Normal Unemployment” results from people changing jobs,
careers, relocating for family, etc.
• Reporting data-set
• Actively seeking employment?
• Underemployed?
• Temporary to Permanent?

11. State of Ohio
• Leading Economic Indicator (compiled index)
for the State of Ohio up to 88.1, from 87.9
• Peaked in 1999 during most recently elevated
economic times
• Employment up from 4996.6 to 5001.5
(Millions)
• If Ohio were a country it would have the 23rd
largest economy in the world
• Right behind Sweden, but ahead of Saudi Arabia

12. Madison County
• Currently Unemployment at 10.6% and falling
• Foreclosure Filings up 38% - Lagging, contra cyclical
indicator
• To 83 from 61 last year – January to March
• Job creation and retention
• Madison County one of four counties to experience net job growth
over the last decade.
• Local jobs particularly important because of their multiplier
• Local Jobs > Local Spending > Local Tax & Revenue > Local Capital
Investment & Infrastructure > Local Jobs
• Logistics
• Ship Yards => Train Yards => Trucking
• If Madison County were a country we would be the 182nd
largest country by GDP rank
• Between British Virgin Islands and Comoros

13. Recession Lesson
• Companies that survive recessions typically become
profitable in the recovery through effective positioning
• Acquisition of inexpensive capital
• Lean Management – Expense Management
• Cash/Asset Management
• Human Capital Acquisition and Management
• Marketing efficiently
• Additional consumer base due to less competition
• Consumer loyalty
• Brand Integrity

14. Conjecture
• Rates remain low in the short term
• Inflation fears cause rates to rise, pushed by the
Federal Reserve OMC and other actions
• Home sales lag until investment (cash) comes
into play from the sidelines
• Look at average bank deposits for forecasting
• Continued decline in housing prices of up to 6%
prior to recovery

15. Business Owner’s Advice
• Correlate rates on Capital Investment to forecast
horizon, or determinate length of the going-concern
• Manage Cash effectively
• Pay attention to your balance sheets, covenants
• Police receivables frequently and discount appropriately
with age and feasibility
• Sector ETFs – Spiders and Vipers useful for gauging
sector activity
• Keep a sharp eye out for opportunity
• Meet with your business partners, coaches, mentors,
networks, and be present in your business and decisions

16. Thank you and good luck!
• Sincere appreciation to The Madison County
Chamber of Commerce facilities and staff, as
well as Gary Branson and the London Public
Library staff and facilities for allowing access to
data sets and research.
• Questions?