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Mid-American States
REGIONAL ECONOMY ON EXPANSION PATH BUT WITH ELEVATED INFLATIONARY PRESSURES
Interview with Dr. Ernie Goss - Summary of January 2010 Results
Survey results at a glance:
- Leading economic indicator rises above growth neutral.
- The employment index indicates slight job additions for January.
- Inventories declined for the 16th straight month but pullbacks are slowing.
- Inflation gauge is more than double January 2009’s level.
For Immediate Release: February 1, 2010
Omaha, Neb. – The January Business Conditions Index for the Mid-America region, a leading economic indicator from a survey of supply managers in a nine-state area, rose to a healthy level. The index expanded to 54.7 from December’s 50.3 and November’s 47.5. An index of 50.0 is considered growth neutral.
Readings over the past several months indicate that the regional economic recovery is picking up steam, albeit at a subdued pace. “While results from the January survey are encouraging, surveys over the past several months point to an economic recovery that is fragile. However, the likelihood of dipping back into recessionary territory has diminished significantly according to our surveys of supply managers. Supply managers are the ‘canary in the coal mine’ for the economy and they are indicating economic expansion in the months ahead. Economic conditions remain less healthy for rural areas of the nine-state region,” Creighton University Economics Professor Ernie Goss said today.
The regional employment index rose above growth neutral for the month. The January reading of 51.7 was up from 47.6 in December, and 46.1 in November. For January 13 percent of supply managers reported job losses and 17 percent indicated their firms increased employment. “This month and in November 2009, we asked supply managers what their layoff expectations are for 2010. Between November and January the percentage of supply managers expecting layoffs in 2010 declined from 41 percent to 24 percent. The number expecting a pay increase in 2010 rose from 48 percent in November to 53 percent in January. While I would not call this a surge, it clearly reflects an improving job market,” said Goss, director of Creighton’s Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics.
Rebounding prices have accompanied job losses for the region. The prices-paid index, which tracks the cost of raw materials and supplies, moved above growth neutral for an eighth straight month to 75.5 from December’s 65.2. “The prices-paid index has more than doubled over the past year. At its January meeting, the Federal Reserve interest rate setting committee said it expects subdued inflation trends ‘which warrant exceptionally low levels of the federal funds rate for an extended period.’ Supply manager surveys over the last several months run contrary to the Fed’s projection. I expect inflation at the consumer level to top 3.3 percent as early as the middle of 2010. This is a full percentage point above the Fed’s acceptable level,” said Goss.
Looking ahead six months, economic optimism, captured by the January confidence index, dipped to a still strong 68.5 from December’s 69.5. “Record low interest rates, improving housing markets and stabilizing unemployment rates are keeping the economic optimism high among supply managers in the Mid-America region,” said Goss.
An improving global economy continues to push exports higher. New export orders advanced to 55.8 from 51.9 in December and 50.0 in November. On the other hand, imports rose to 50.0 from December’s 48.5 and November’s 47.8. “Exports will be an important component of any significant 2010 economic rebound,” said Goss.
Supply managers in the nine-state region continue to reduce inventories. The January inventory index soared to a still weak 48.3 from December’s 39.2. “This is the 16th straight month that the inventory index has been below growth neutral. Even as business confidence has grown, we have yet to record any restocking of inventories of raw materials and supplies. Any significant restocking will be a very positive factor for the regional economy,” said Goss.
Other components of the January Business Conditions Index were new orders at 57.4, up from 55.5 in December; production or sales at 57.9, up from 54.4; and delivery lead time at 58.4, up from 54.7.
The Creighton Economic Forecasting Group has conducted the monthly survey of supply managers in nine states since 1994 to produce leading economic indicators of the Mid-America economy. States included in the survey are Arkansas, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, Oklahoma and South Dakota.
The Creighton Economic Forecasting Group uses the same methodology as a national survey by the Institute for Supply Management, formerly the Purchasing Management Association, which has formally surveyed its membership since 1931 to gauge business conditions. The overall index, referred to as the Business Conditions Index, ranges between 0 and 100. An index greater than 50 indicates an expansionary economy over the course of the next three to six months.
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