Prepared by David G. Sowerby, CFA
Loomis, Sayles & Company, LP

The Greater Lansing Business Index has been developed to better gauge the health of the local business climate. To create the index, The Greater Lansing Business Monthly compiled six diverse variables to measure local economic activity in the Greater Lansing area. The index includes statistics from the housing, motor vehicle, tourism and travel, energy, labor market and financial sectors to capture a wide sample of the diverse economic base in mid-Michigan.

The specific variables are:
1. Residential housing units built (seasonally adjusted)
2. Motor vehicle production (seasonally adjusted)
3. Hotel occupancy rates (seasonally adjusted)
4. Kilowatt per hour usage (seasonally adjusted)
5. Ingham County employment
6. Local area stock prices

The index will be reported quarterly to provide an updated assessment of the local economy. In capturing a diverse group of economic variables across key sectors, the index provides a timely and accurate tool for businesspeople to measure how their own operations are performing compared with a broader gauge of the Greater Lansing area.

The index has a base of 100 established on January 1997. The latest reading, as of November 2002, is at a level of 115.2. During the past year, the index has risen 6 percent, which appears consistent with the overall growth of the national economy. Indeed, in the last several months, the pace of growth has slowed slightly, also reflecting that while the recovery is progressing, its rate of growth has moderated. This is particularly apparent when we modify the percent changes in growth using a six-month moving average, which assists in smoothing the volatility in growth that normally comes when analyzing local business conditions. On a six-month smoother or moving average basis, the year over year growth rate is currently 3.5 percent compared with a 6 percent rate that was prevailing in the summer of 2002.

Encouragingly, the actual index level has witnessed a modest increase in the last two months rising from a level of 112 in September to 115 in November. Stronger local area stock prices, higher energy usage and continued growth in residential housing units are among the variables contributing to the gain. In addition, when comparing mid-Michigan with other Michigan regions, the Greater Lansing area economy is stable and among the strongest in the state.

Several of the statistics used are adjusted to remove the seasonal volatility that either over or under estimate the true state of business. This is particularly important in the construction and motor vehicle sectors, which have a distinct seasonal pattern.