A decline in building permits and manufacturing hours worked led to a drop in the state's index of economic activity for December, but the overall outlook was positive, according to a report today from the Iowa Department of Revenue.

The Iowa Leading Indicators Index fell to 105.9 in December, fed by a drop in residential building permits to 823 from 826 on a 12-month moving average and a decline in manufacturing hours worked to 40.65 from 40.74 in November. Year-to-year, the number of hours worked dropped one hour.

The monthly diffusion index rose to 50, recovering from 25 in November, due to positive changes in four components. The six-month annualized change in the index continued to be positive for the 11th consecutive month and the six-month diffusion index rose to 75, suggesting that employment growth will be positive into spring, according to a news release.

The most positive contributor in December was the Iowa stock market index, which was the largest negative contributor in November. Of the 34 stocks included in the index, 28 had positive gains in December, including 10 of the 11 financial-sector companies. Diesel fuel consumption was the second most positive contributor, increasing 3 percent from the year-ago period.

The other two positive contributors in December were unemployment insurance claims and the national yield spread. Unemployment insurance claims decreased again in December after the only increase in 36 months occurred in October. Claims were 1.2 percent below the number of claims made in December 2011, and were 1.5 percent above the historical average for December.

The national yield spread also contributed positively due to the long-term interest rate rising to 1.72 percent in December and the short-term rate falling to 0.07 percent, widening the yield spread to 1.65.

Click here for the full December report.