Index Methodology

      Tucson Electric Power's Analytics Group has created two indicators to track the Tucson-area economy based on a traditional business-cycle approach developed by the National Bureau of Economic Research (the academic group that officially dates the peaks and troughs in the national economic cycle). The two TEP measures, which are now maintained by The Retail Economist, LLC, are composite indexes of cyclical indicators that capture current and future business conditions for the local economy. The Tucson Current Business Activity Index is compiled from taxable retail sales for Pima County, seasonally- and inflation-adjusted, hotel revenue for Pima County (also seasonally and inflation-adjusted), and Tucson-area payroll employment. Those two composite measures collectively define the local business cycle and the composite index is formed as a weighted average of employment (75%—since it provides a more comprehensive view of the local economy) and real or inflation-adjusted retail sales and real hotel revenues.
     The local business cycle peaks and troughs are defined in terms of the composite business activity measure. Those data suggest that the local area did not experience a recession associated with the national downturn in 1990. However, the mild U.S. contraction in 2001—which lasted eight months—was far more severe locally with a 19-month downturn. Unfortunately, the longest postwar downturn in the U.S. beginning in December 2007 and lasting 18 months saw an incredibly long 43-month contraction locally—beginning in March 2007 and extending through October 2010.
     The companion series, the Tucson Leading Economic Indicator, is compiled from five economic indicators that directly or indirectly have an impact on the Tucson economy and lead cyclical turning points in the local business cycle. Those measures are: (1) construction employment in Tucson; (2) residential building permits for Tucson; (3) average weekly hours in private industry for Tucson; (4) a composite leading economic indicator for the copper industry that is compiled by the U.S. Geological Survey; and (5) a composite leading economic indicator for the Mexican economy that is compiled by the Organization for Economic Development and Cooperation (OECD).  The leading indicator composite has an average lead time of seven months ahead of peaks in the local economy, but at the troughs in the local business cycle has a long 19-month lead time.