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May Job Growth Hits 10-Year High for Mid-America Region: Inflationary Pressures Trend Higher

May Job Growth Hits 10-Year High for Mid-America Region: Inflationary Pressures Trend Higher

Survey Results at a Glance:

  • Higher interest rates and energy prices fail to slow growth in the region.
  • Supply managers report significant and rising inflationary pressures.
  •  The May employment reading rose to its highest level in more than 10 years.

The May Business Conditions Index for the Mid-America region indicates continued growth in the months ahead, but with rising inflationary pressures, according to the monthly survey of supply managers and business leaders in the nine-state region.

“While the overall index for May was down slightly to 65.7, from April’s 66.0, the leading economic indicator points to improving growth for the region,” Creighton University Economics Professor Ernie Goss said today.

“Despite sharply higher short-term interest rates and upturns in energy prices, firms reported strong hiring for the month. The May employment index soared to 65.5, a 10-year high, from April’s already healthy 64.5. The region has added more than 90,000 jobs this year for an annualized rate of 2.1 percent. This year’s graduates and summer job seekers are entering one of the best job markets since 1999,” said Goss, the Jack A. MacAllister Chair in Regional Economics and director of the Creighton Economic Forecasting Group.

At the same time, the prices-paid index, which tracks inflation at the wholesale level, rose to its highest level since November of 2005 with a reading of 83.0, up from April’s 79.1.

“I expect this and other inflation gauges to push the Federal Reserve Open Market Committee (FOMC) to once again raise interest rates at its next meeting on June 28-29. If the Bureau of Labor Statistics reports tomorrow that the U.S. added more than 200,000 jobs in May, I place the likelihood of a June interest rate hike above 95 percent,” said Goss. “The Fed’s three rate hikes this year on top of 13 straight increases in 2004 and 2005, along with oil prices above $70 per barrel, have failed to slow the regional economy and have had surprisingly little impact on confidence among supply managers.”

The May confidence index stood at 62.3 compared to last May’s reading of 58.6. Even with shipping surcharges, transportation firms across the region detailed rising shipments stemming from the expanding regional and national economy.

Firms in the region registered very healthy trade numbers for the month with new export orders rising to 61.5, it highest level in more than two years, and the import reading climbing to 65.8. Other factors contributing to May’s solid report were: new orders at 67.6, down from 70.2, production at 69.9, up from 69.8, and inventories at 58.7, down from 60.8. The May delivery lead-time index increased to 59.4, its highest level since September 2004, and up from April’s 59.0.

“These strong numbers parallel growth in the transportation sector. A delivery lead-time index above 50.0 indicates potential shipping backlogs and usually precedes upward pressures on prices in the near term,” said Goss.

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 Institute for Supply Management, formerly the Purchasing Management Association, began to formally survey its membership in 1931 to gauge business conditions. The Creighton Economic Forecasting Group uses the same methodology as the national survey.

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.

Arkansas: According to the May survey of supply managers and business leaders, Arkansas’ economy continues to grow at a brisk pace. The overall index from the survey, a leading economic indicator, stood at a very healthy 76.2, down slightly from April’s 78.6. Components of the overall index for the month were: new orders at 85.3, production at 82.4, delivery lead time at 64.7, inventories at 61.8 and employment at 70.6. “Firms in the transportation sector remain on a strong growth path as they benefit from upturns in shipments. Even with stiff energy surcharges, firms in Arkansas have yet to slow their demand for on-time supplies. On the other hand, food processors are reporting weak economic conditions,” said Goss.

Iowa: Higher interest rates and energy prices have failed to slow Iowa’s strong economic growth. The overall index, a leading economic indicator from a survey of supply managers and business leaders, expanded to a healthy 65.7 from April’s 59.6 and March’s 58.0. Components of the overall index for May were: 64.6 for new orders, 68.8 for production, 61.4 for delivery lead time, 66.7 for employment and 65.9 for inventories. “Despite weaker 2006 farm income, firms in Iowa’s agriculture machinery manufacturing industry are experiencing solid growth. Driven by a strengthening economy, truck transportation companies in the state continue to see solid job growth. Iowa’s manufacturing sector has had a solid 2006,” said Goss.

Kansas: For the third straight month the business conditions index for Kansas moved higher reflecting mounting growth. The index, a leading economic indicator, increased slightly to 62.5 from April’s very healthy 62.0 and March’s 51.9. Components of May’s index were: new orders at 65.4, production at 65.2, delivery lead time at 53.8, employment at 61.5 and inventories at 61.8. “Food processing remains a weak industry in Kansas, while aircraft manufacturing and related industries are experiencing robust growth. Growth is much stronger in urban and metropolitan areas of the state than in rural portions,” said Goss.

Minnesota: Minnesota’s business conditions index rose to its highest level since initiation of the survey in 1994. The index jumped for the fifth straight month to 74.8 from April’s already robust 68.7. Components of the overall index for May were: new orders at 77.6, production at 84.7, delivery lead time at 59.2, inventories at 60.0 and employment at 77.5. “Minnesota’s economic growth has escalated over the past several months. Durable goods manufacturers reported strong hiring for the month. While non-durable manufacturers detailed softer economic conditions, food processors reported upturns in hiring after a long period of flat economic conditions,” said Goss.

Missouri: For the fifth consecutive month, Missouri’s business conditions index, from the monthly survey of supply managers and business leaders, advanced. The index increased slightly to 59.0 from April’s 57.2 and March’s 57.0. Components of the overall index from the May survey were: new orders at 61.1, production at 61.4, delivery lead time at 57.7, inventories at 51.7 and employment at 57.7. “The Missouri economy has experienced solid growth for 2006. Our surveys points to a continuation of that growth before higher interest rates and rising energy prices flatten hiring in Missouri in the second half of 2006. Truck transport firms and food processors reported solid growth with upturns in hiring for the month,” said Goss.

Nebraska: For the first time since last December, Nebraska’s business conditions index was down. The index, a leading economic indicator from a survey of supply managers, declined to a still healthy 64.0 from April’s 65.9. Components of the overall index were: 68.6 for new orders, 63.0 for production, 53.9 for delivery lead time, 66.3 for inventories and 64.7 for employment. “Nebraska manufacturers reported very strong growth for the month with even food processors adding workers to their payrolls. As in past months, transportation firms, truckers and rail transporters, detailed upturns in economic activity with new hiring for the month,” said Goss.

North Dakota: North Dakota’s business conditions index from the monthly survey of supply managers and business leaders declined to a still healthy 63.3 from April’s 67.7 and March’s 69.9. Components of the overall index for May were: new orders at 59.4, production at 65.6, delivery lead time at 68.8, employment at 68.4 and inventories at 50.0. “As in past months, natural resource, mining and extraction firms experienced expanding economic conditions for the month. Driven by rapid economic growth, transportation firms in North Dakota reported solid new hiring for the month,” said Goss.

Oklahoma: The business conditions index, from the monthly survey of supply managers and business leaders in Oklahoma, declined from April’s regional high reading. The index, a leading economic indicator, declined to 75.8 from April’s 81.9, but up from March’s 60.0. Component readings for May were: new orders at 66.7, production at 83.3, delivery lead time at 66.7, inventories at 83.5 and employment at 84.2. “Construction activity in Oklahoma was strong for the month, despite rising interest rates and higher energy prices. The state, regional and national economic expansion is showing up in Oklahoma’s truck transportation sector with solid new hiring for May,” said Goss.

South Dakota: For the third consecutive month, South Dakota’s business conditions index declined. However, the index, a leading economic indicator from a monthly survey of supply managers and business leaders, stood at a solid 60.4, but down from April’s 64.5 and March’s 67.4. Components of the May index were: new orders at 65.8, production at 68.4, delivery lead time at 65.8, inventories at 52.6 and employment at 42.1. “While the May job reading indicated pullbacks, I expect current strong new orders to show up in employment growth in the months ahead. Both durable and non-durable manufacturers reported upturns in economic activity for May. New export orders were very healthy for May at 60.0,” said Goss.

For historical data and forecasts visit www.outlook-economic.com or www.erniegoss.com.

For ongoing commentary on recent economic developments, visit the blog at www.economictrends.blogspot.com.

Posted 6/2/06