Latest Figures
The value of the GPGILI in August 2008 was 99.5, up very slightly from the July 2008 value of 99.4, but down from 100 in August 2007. The reason for the July to August increase was that several of the variables that comprise the GPGILI rose between July and August: 1) outbound export vessel trips from the Delaware River ports; 2) employees in temporary services, and 3) Philadelphia Stock Index, which offset the decline in the US Leading Index over the same period.

The monthly GPGILI values have been below its 12-month moving average in 11 of the last 12 months as shown in the figure above, indicating continued weakness for the Philadelphia economy over the next 6-months. By contrast, the monthly values of the U.S. Leading Index have been below its 12-month moving average during each of the last 13 months. Comparing the two leading indices shows that the 12-month moving average for the GPGILI has been declining more slowly than the 12-month moving average for the U.S. leading indicator. Taken as a whole, these trends indicate that the Greater Philadelphia economy is expected to decline at a slower rate than the U.S. economy over the next six months.

The recent major events and interventions in the national economy, such as the federal government"s takeover of Freddie Mac and Fanny Mae, the failure of Lehman Brothers, the loan to AIG, and most recently, the passage of the $700 billion Troubled Assets Repurchase Program (TARP) have been too recent to show up in the values of the economic variables that comprise the GPGILI and the U.S. Leading Index. We expect that the after-effects of the credit crisis and the decline in economic activity that was underway well before the events of the last several months will cause the monthly values for both the GPGILI and the U.S. Leading Indicator to decline in the coming months.

Interpretation
The Greater Philadelphia Global Insight Leading Index (GPGILI) provides important signals about the direction of future economic conditions in the Philadelphia MSA when there is sustained upward or downward movement in the value of the leading index. An occasional month-to-month decrease in the Index does not necessarily signal that an expansion is ending, nor does an occasional month-to-month increase indicate that a decline is likely to end. Only sustained declines or increases in the PLI provide a reliable signal for upcoming changes in the direction of the Greater Philadelphia economy. A good way to measure sustained changes in the GPGILI is to use its 12 month moving average. As a result, it is necessary to compare the most recent monthly values of the leading index to the trend in its 12-month moving average to properly interpret changes:

When the GPGILI has been consistently above its 12-month moving average, the region"s economy is likely to enter a period of expansion, and when the GPGILI has been consistently below its 12-month moving average, the region"s economy is likely to enter a period of declining economic growth.

Methodology
The Greater Philadelphia Global Insight Leading Index (GPGILI) is designed to signal a change in the direction of economic activity in the Philadelphia MSA with an approximate lead time of six months. Global Insight was retained by Select Greater Philadelphia to construct the GPGILI. A leading indicator is an economic variable that changes before the level of activity in the larger economy changes. Stated another way, leading indicators change ahead of movements in the business cycle. At the U.S. level, leading indicators of future economic activity include among others: interest rate spreads, consumer expectations, manufacturers' new orders for nondefense capital goods, building permits, initial claims for unemployment insurance, average weekly hours worked in manufacturing, and changes in inventory.

The GPGILI is a composite of four individual data series that were found to accurately predict turning points in the Philadelphia business cycle in the past. Sustained increases in the GPGILI suggest that the Philadelphia economy is likely to enter a period of expansion, while sustained decreases indicate that the regional economy may be headed into a downturn within 6 months.

The GPGILI was created by determining the statistical relationship between a pool of leading indicators and economic activity 6 months hence. Potential indicators were chosen from a collection of local, state and national variables based on their economic significance, frequency, and timeliness, and whether they acted as leading indicators. From the list of potential leading indicators, the following four were found, using multiple regression analysis, to be the best predictors of the direction of future economic activity by accurately forecasting the values of Greater Philadelphia Global Insight Coincident Index (GPGICI) six months ahead:

Regression analysis was also used to determine the statistically significant weights for each variable that were used to create the composite index.