Validation Analysis Performance of the Alabama Business Confidence Index The Center for Business and Economic Research estimates the statewide Alabama Business Confidence Index™ (ABCI) from an online survey of Alabama business executives. During the month prior to each quarter, researchers gather panelists’ expectations for economic prospects and industry performance looking ahead to the upcoming quarter. The fourth quarter 2013 survey conducted in September marked the 48th consecutive quarter of the ABCI. The collected data allows for evaluation of the performance of the ABCI, National Economy, and Alabama Economy indexes against economic indicators including U.S. real GDP, nonfarm employment, and Alabama GDP. The graphs below show strong correlations between indexes and these economic indicators, confirming the predictive significance of the ABCI. Alabama ABCI Components ABCI National Economy Alabama Economy Industry Sales Industry Profits Industry Hiring Plans Industry Capital Expenditures For ABCI and component indexes: value above 50 indicates positive outlook value below 50 indicates negative outlook ABCI National Economy and U.S. Real GDP ABCI and U.S. Real GDP 2.5
50
0
ABCI,
Expectations
from prior quarter
40
‐2.5
‐5
30
National Economy Index
ABCI
60
Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: U.S. Bureau of Economic Analysis, IHS Global Insight, and Center for Business and Economic Research, The University of Alabama. 5
80
U.S. Real GDP
70
2.5
60
50
0
40
ABCI ‐2.5
National Economy, Expectations from prior quarter
‐5
30
20
Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: U.S. Bureau of Economic Analysis, IHS Global Insight, and Center for Business and Economic Research, The University of Alabama. U.S. Real GDP % change from same quarter of prior year U.S. Real GDP
U.S. Real GDP % change from same quarter of prior year 5
70
ABCI and U.S. Nonfarm Employment 0
ABCI
50
40
30
U.S. Nonfarm Employment
‐0.5
‐1
‐1.5
20
‐2
10
4
70
Alabama GDP
65
55
50
1
ABCI Alabama Economy,
Annualized Index
0
45
‐1
40
‐2
35
‐3
‐4
30
Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
3
2
60
Alabama GDP % change from prior year
0.5
60
5
75
1
Alabama Economy Index
ABCI, Expectations from prior quarter
U.S. Nonfarm Employment % change from previous quarter
70
ABCI Alabama Economy and State GDP 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Note: Seasonally Adjusted Data. Source: U.S. Bureau of Economic Analysis, IHS Global Insight, and Center for Business and Economic Research, The University of Alabama.
Source: U.S. Bureau of Economic Analysis, IHS Global Insight, and Center for Business and Economic Research, The University of Alabama. Validation of Alabama Business Confidence Index, November 2013
Performance of ABCI Industry Component Indexes ABCI industry components are also correlated with respective indicators of the national or state economy. The ABCI Industry Sales index does a good job predicting state sales tax revenue collections, while Industry Hiring forecasts the growth of state nonfarm employment. The Industry Profits index reflects the change in U.S. corporate profits. Meanwhile, ABCI panelists’ assessment of upcoming Capital Expenditures indicates the trend of U.S. private fixed nonresidential investment. ABCI Survey Design The ABCI is a forward‐looking survey. Thus, the value of the composite ABCI and each of its six components in a particular quarter measures expectations by Alabama business executives recorded in the prior quarter. Comparing these indexes to relevant historical economic data for that quarter, as shown in the graphs in this analysis, demonstrates the predictive value of the ABCI and its components. ABCI Industry Hiring and Alabama Nonfarm Employment ABCI Industry Sales and Alabama Sales Tax Revenue 5
0
Alabama Sales
Tax Revenue
‐5
‐10
‐15
2002
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
2013
Source: U.S. Bureau of Economic Analysis, IHS Global Insight, and Center for Business and Economic Research, The University of Alabama. Hiring Index
Sales Index
10
70
0
40
‐1
30
‐2
20
‐3
‐4
50
60
25
50
0
40
‐25
30
‐50
Note: IVA is inventory validation adjustment. Source: U.S. Bureau of Economic Analysis, IHS Global Insight, and Center for Business and Economic Research, The University of Alabama. for Business and Economic Research, The University of Alabama. ABCI Capital Expenditures Index, Expectations from prior
quarter (left scale)
U.S. Gross Private Fixed Nonresidential Investment (right scale)
6
80
70
4
60
2
50
0
40
‐2
30
‐4
20
‐6
‐8
10
Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: U.S. Bureau of Economic Analysis, IHS Global Insight, and Center for Business and Economic Research, The University of Alabama. ABCI Calculation Notes The ABCI survey measures industry components on a five‐part scale: strong increase, moderate increase, no change, moderate decrease, strong decrease. The economic indicators also employ a five‐part scale, but the wording is: much better, somewhat better, remain the same, somewhat worse, much worse. These choices are weighted +2, +1, 0, ‐1, ‐2. Then the overall ABCI = ((Σ responses / # surveys) + 12) / 24*100. Thus, the ABCI range is 0 to 100, with 50 the neutral point. An index is similarly calculated for each of the six components of the survey.
2
Source: U.S. Bureau of Economic Analysis, IHS Global Insight, and Center Capital Expenditures Index
Profits Index
50
U.S. Gross Private Fixed Nonresidential Investment % change from previous quarter
U.S. Corporate
Profits Before Tax, 75
Excluding IVA
Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
1
Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
U.S. Corporate Profits Before Tax % change from same quarter of prior year
70
100
ABCI Industry Profits Index, Expectations from prior quarter
60
ABCI Industry Capital Expenditures and U.S. Private Fixed Nonresidential Investment ABCI Industry Profits and U.S. Corporate Profits 80
2
10
90
ABCI Industry Hiring Index, Expectations from prior quarter (left scale)
Alabama Nonfarm Employment (right scale)
Alabama Nonfarm Employment % change from previous quarter
15
Alabama Sales Tax Revenue % chg. from prior year, 3‐mo. moving avg.
75
70
65
60
55
50
45
40
35
30
25
ABCI Industry Sales Index, Expectations from prior quarter
Center for Business and Economic Research, The University of Alabama | Validation of ABCITM
Performance of Alabama Business Confidence Indexes for Metropolitan Areas The Center for Business and Economic Research also estimates an Alabama Business Confidence Index™ (ABCI) for the state’s largest metropolitan areas from the responses of metro business executives to the online survey. The fourth quarter 2013 survey conducted in September marked the 32nd consecutive quarter of the metro ABCI. The gathered data allows for evaluation of the performance of the ABCI for the Birmingham‐Hoover, Huntsville, Mobile, and Montgomery metro areas by comparing selected indexes against corresponding metro GDP and nonfarm employment. The following graphs demonstrate correlation between the ABCI metro indexes and trends of metro GDP. Additional graphs show how metro area Industry Hiring indexes effectively predict metro nonfarm employment trends. Metropolitan Area ABCI Birmingham‐Hoover Huntsville Mobile Montgomery For metropolitan area ABCI and component indexes: value above 50 indicates positive outlook value below 50 indicates negative outlook
Huntsville ABCI and Metro GDP
Birmingham‐Hoover ABCI and Metro GDP 4
60
2
55
50
0
Birmingham‐Hoover ABCI, Annualized Index
45
40
‐2
‐4
35
‐6
30
2006
2007
2008
2009
2010
2011
2012
Huntsville ABCI
% change from previous year
65
25
4
10
5
2
0
0
‐5
‐15
‐6
‐25
‐8
2006
‐1
30
‐2
20
‐3
‐4
10
Q1
2006
Q1
2007
Q1
2008
Q1
2009
Q1
2010
Q1
2011
Q1
2012
Q1
2013
Source: Alabama Department of Labor and Center for Business and Economic Research, The University of Alabama.
2010
2011
2012
2013
Huntsville ABCI Industry Hiring and Nonfarm Employment Huntsville ABCI Industry Hiring Index, Expectations from prior quarter (left scale)
Huntsville Nonfarm Employment (right scale)
70
Huntsville
Industry Hiring Index
Birmingham-Hoover
Industry Hiring Index
40
2009
2
60
1
50
0
40
‐1
30
‐2
20
‐3
Q1
2006
Q1
2007
Q1
2008
Q1
2009
Q1
2010
Q1
2011
Q1
2012
Q1
2013
Source: Alabama Department of Labor and Center for Business and Economic Research, The University of Alabama.
Center for Business and Economic Research, The University of Alabama | Validation of ABCITM
Huntsville Nonfarm Employment
% change from previous quarter
0
2008
Birmingham-Hoover
Nonfarm Employment
% change from previous quarter
50
2007
Source: U.S. Bureau of Economic Analysis and Center for Business and Economic Research, The University of Alabama. Birmingham‐Hoover ABCI Industry Hiring Index, Expectations from prior quarter (left scale)
Birmingham‐Hoover Nonfarm Employment (right scale)
2
1
‐4
‐20
Birmingham‐Hoover ABCI Industry Hiring and Nonfarm Employment 60
‐2
Huntsville ABCI,
Annualized Index
70
6
15
‐10
2013
Source: U.S. Bureau of Economic Analysis and Center for Business and Economic Research, The University of Alabama. 8
Huntsville Metro GDP
20
Huntsville Metro GDP
% change from previous year
Birmingham-Hoover ABCI
6
Birmingham‐Hoover Metro GDP
Birmingham-Hoover Metro GDP
% change from previous year
70
3
Mobile ABCI and Metro GDP Mobile Metro GDP
65
8
6
60
4
55
2
50
0
45
Mobile ABCI, Annualized Index
‐2
40
‐4
35
‐6
2006
2007
2008
2009
2010
2011
2012
Montgomery ABCI
10
80
6
75
5
4
70
Montgomery Metro GDP
65
60
3
2
1
55
50
Montgomery ABCI,
Annualized Index
45
Source: U.S. Bureau of Economic Analysis and Center for Business and Economic Research, The University of Alabama. ‐3
2006
‐1
‐2
40
35
2013
0
Montgomery Metro GDP
% change from previous year
12
75
Mobile Metro GDP
% change from previous year
80
70
Mobile ABCI
Montgomery ABCI and Metro GDP 2007
2008
2009
2010
2011
2012
2013
Source: U.S. Bureau of Economic Analysis and Center for Business and Economic Research, The University of Alabama. Mobile ABCI Industry Hiring and Nonfarm Employment Montgomery ABCI Industry Hiring and Nonfarm Employment 70
2
60
1
50
0
40
‐1
30
‐2
20
‐3
‐4
10
Q1
2006
Q1
2007
Q1
2008
Q1
2009
Q1
2010
Q1
2011
Q1
2012
70
Montgomery
Industry hiring Index
Mobile
Industry Hiring Index
3
Mobile Nonfarm Employment
% change from previous quarter
80
60
1
50
0
40
‐1
30
‐2
20
‐3
10
‐4
Q1
2006
Q1
2013
2
Q1
2007
Q1
2008
Q1
2009
Q1
2010
Q1
2011
Q1
2012
Montgomery
Nonfarm Employment
% change from previous quarter
Montgomery ABCI Industry Hiring Index, Expectations from prior quarter (left scale)
Montgomery Nonfarm Employment (right scale)
Mobile ABCI Industry Hiring Index, Expectations from prior quarter (left scale)
Mobile Nonfarm Employment (right scale)
Q1
2013
Source: Alabama Department of Labor and Center for Business and Economic Research, The University of Alabama
Source: Alabama Department of Labor and Center for Business and Economic Research, The University of Alabama. ABCI Share of Panelists by Industry, 2013 Average (Percent of Total Statewide) Construction Manufacturing Transportation/Information/Utilities Wholesale Trade Retail Trade Finance/Insurance/Real Estate Professional/Scientific/Technical Services Healthcare Services All Other Services 6.7 13.1 7.3 4.9 4.6 20.0 17.5 6.7 17.5 ABCI Survey Acknowledgement The Center for Business and Economic Research would like to thank the Alabama business executives who complete the ABCI survey on a regular basis. Survey participation averaged 268 during the four quarters of 2013. We encourage you to sign on at cber.cba.ua.edu/ABCI during the first two weeks of December 2013 to record your opinion about economic prospects and industry performance looking ahead to the first quarter of 2014. Analysis provided by Viktoria Riiman, Research Associate, Center for Business and Economic Research, The University of Alabama. TM
For more details on the Alabama Business Confidence Index , visit cber.cba.ua.edu/ABCI For information on the Center for Business and Economic Research, visit cber.cba.ua.edu 4
Center for Business and Economic Research, The University of Alabama | Validation of ABCITM