Building the Census Bureau Index of Economic Activity (IDEA)
March 2023
Working Paper Number:
CES-23-15
Abstract
The Census Bureau Index of Economic Activity (IDEA) is constructed from 15 of the Census Bureau's primary monthly economic time series. The index is intended to provide a single time series reflecting, to the extent possible, the variation over time in the whole set of component series. The component series provide monthly measures of activity in retail and wholesale trade, manufacturing, construction, international trade, and business formations. Most of the input series are Principal Federal Economic Indicators. The index is constructed by applying the method of principal components analysis (PCA) to the time series of monthly growth rates of the seasonally adjusted component series, after standardizing the growth rates to series with mean zero and variance 1. Similar PCA approaches have been used for the construction of other economic indices, including the Chicago Fed National Activity Index issued by the Federal Reserve Bank of Chicago, and the Weekly Economic Index issued by the Federal Reserve Bank of New York. While the IDEA is constructed from time series of monthly data, it is calculated and published every business day, and so is updated whenever a new monthly value is released for any of its component series. Since release dates of data values for a given month vary across the component series, with slight variations in the monthly release date for any one component series, updates to the index are frequent. It is unavoidably the case that, at almost all updates, some of the component series lack observations for the current (most recent) data month. To address this situation, component series that are one month behind are predicted (nowcast) for the current index month, using a multivariate autoregressive time series model. This report discusses the input series to the index, the construction of the index by PCA, and the nowcasting procedure used. The report then examines some properties of the index and its relation to quarterly U.S. Gross Domestic Product and to some monthly non-Census Bureau economic indicators.
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