Mid-Atlantic Economies Lagging, More on SLGS, and Overlooked News from PR

Categories: Commentary, Uncategorized |

April 27, 2015

This week, we chart the most recent State economic data from the Philly Fed, respond to a reader inquiry regarding our previous discussion of SLGS, and highlight a little noticed piece of Puerto Rico news from last week.

Philly Fed Shows Mid-Atlantic States Lagging

The Federal Reserve Bank of Philadelphia recently released its State Coincident Indexes for March.  Most States showed positive growth, but six were negative.


The most notable increase was Michigan, which was up 0.8% in March and 1.2% in February.  The mid-Atlantic States (particularly Virginia and Maryland) continue to lag in economic growth.  A local blogger citing a Washington Post article and his own observations attributes this to sequestration and reductions in Federal spending.


We continue to monitor the Philly Fed Indexes and other incoming economic data for signs of weakness in the oil patch.  Last month, the economies of Oklahoma and Louisiana contracted slightly.  North Dakota’s economic growth was flat.  Texas was in line with the national average.

Closing of SLGS Window Doesn’t Change Long Term Trends

In last week’s Commentary, we looked at historical volumes of Treasury State and Local Government Series (SLGS) outstanding and used it as a proxy to track the amount of pre-funded bonds outstanding.


A reader asked us how the periodic closures of the SLGS window by the Treasury impact the analysis.  Outstanding SLGS are part of the debt included under the Congressionally approved debt ceiling.  As the debt ceiling is approached, closing the SLGS window (suspending subscriptions for new SLGS) is one tool used by the Treasury to avoid hitting the limit.

Because the Treasury frequently honors subscriptions for SLGS while the window is closed, the amount of SLGS outstanding can sometimes increase despite a closure.  We suspect that issuers and their agents anticipate upcoming closures and increase or accelerate their subscriptions in anticipation of closures.


The window has been closed 11 times in the past 20 years.  The average closing time has been 64 days.  The longest recent closing was for 152 days between May 17, 2013 and October 16, 2013.

During the ’13 closure the volume of SLGS outstanding declined by $48b (29%).   Comparing SLGS volume change during this period to the overall trend, we estimate that $10b (20%) of this decline was attributable to the closure of the window.  The balance was roll-offs of previous maturities.   On July 1, 2013 the amount of SLGS outstanding declined by $15b (10%); this is the largest one-day change in SLGS outstanding.

Puerto Rico Sets a Low Bar for Disclosure and Still Misses

Last week was a news-filled one for Puerto Rico.  One of the lesser items that could easily have been overlooked was the announcement by the government that, once again, the filing of their CAFR would be late, missing a very generous 305 day commitment in their Continuing Disclosure Agreements.

4-27-15-5Source:  DIVER Analytics

Puerto Rico’s problems are well publicized, but we highlight this to support our thesis that late filings correlate with other fiscal challenges.  As we discussed in a previous Commentary, we believe that failure to perform such a basic governmental function as a timely financial disclosure points to weaknesses in financial controls, reporting and management.

Connecticut has not yet produced an audited CAFR, but has filed the final (hopefully) revision to its Annual Information Statement on March 16 (originally filed with bad data on February 27), thus technically meeting their end of February required disclosure deadline.

Have a great week,



Michael Craft, CFA