Mid-American Economy Heats Up with the Weather Inflationary Pressures Down as Confidence Rises for February
Unseasonably warm weather helped push the overall business conditions index for the Mid-America region forward for February, while inflationary pressures waned, according to the monthly survey supply managers and business leaders in the nine-state region.
The overall index for February inched higher to 59.9 from January’s healthy 59.8 and well above December’s solid 56.1.
“It is certainly clear that record warm weather for much of the region for January and February played an important role in supporting the economy as businesses paid less than anticipated for heating and construction projects normally stymied by winter weather advanced,” Creighton University Economics Professor Ernie Goss said today.
At the same time, the region’s prices-paid index, which measures inflation at the wholesale level, dropped to 74.3, the fifth consecutive decline moving to its lowest level since August of last year. “Despite modest inflationary pressures at the regional and national level, I expect the Federal Reserve to once again raise rates at its next meeting on March 27-28, even though I had previously indicated that there would not be an increase from Bernanke’s first Open Market Committee meeting. The likelihood of at least a 25 basis point (0.25 percent) increase is now 100 percent. The market is now looking ahead to the following Fed meeting on May 10 and I think the probability of a rate hike at the May meeting is more than 50 percent. However, the real danger is that the warm weather may have fooled many into thinking the economy is doing better than it is,” said Goss.
The business confidence index climbed to 64.6, its highest reading since February 2005, and up from January’s 59.7. The confidence index gauges survey participants economic outlook six months out. An index below 50.0 indicates a negative outlook. “I think recent national debates involving devoting more resources to renewable energy production has had positive and significant impacts on businesses in this part of the country. For example, greater reliance on ethanol by the U.S. will make many areas in the region clear economic winners,” said Goss.
The warmer weather produced a solid upturn in hiring as the regional employment index increased to 58.4 from January’s 54.2. However, the hiring index for February of this year is down from 62.4 for February 2005. "I expect positive, but weaker hiring in the region in the months ahead as the Fed’s fifteen rate hikes, including March’s slow growth in the economy," said Goss, the Jack A. MacAllister Chair in Regional Economics and director of the Creighton Economic Forecasting Group.
Imports into the region remained brisk with a February reading of 57.3, down slightly from January’s 58.0. On the other hand, new export orders tumbled to 52.0 from January’s reading of 57.2. The regional numbers, like national readings, point to continuing trade imbalances with the outcome of rising political hyperbole. The real danger from rising imports and lethargic exports is that it will encourage political meddling and trade restrictions, which would ultimately harm the economy.
Other readings from the February survey were: new orders at 61.0, down from January’s 63.5, production 62.0, down from 64.0, and inventories at 56.0, up from 55.5. “The February delivery lead time index stood at a relatively high 54.5, but down slightly from January’s 55.6. A delivery lead time index above 50.0 indicates potential shipping and delivery delays and can be a harbinger of higher prices. However in recent months, I think delays at ports have been the chief factor driving the index higher,” 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: For the first time since October of 2005, Arkansas’ business conditions index declined. The index, a leading economic indicator from a survey of supply managers and business leaders, moved down to a still strong 69.8 from January’s 71.7 and December’s 70.9. Components of the overall index for the month were: new orders at 70.0, production at 73.3, delivery lead time at 76.7, inventories at 63.3 and employment at 63.3. “Businesses located in the Northwest portion of Arkansas tended to report stronger economic conditions than businesses in other parts of the state. However, I do expect reasonably solid job growth for most areas through the second quarter of this year,” said Goss.
Iowa: The overall index from the monthly survey of supply managers and business leaders in Iowa rose to its highest level since April of last year, climbing to a robust 61.5 from January’s 58.0. Components of the overall index for February were 68.2 for new orders, 70.8 for production, 47.5 for delivery lead time, 56.3 for employment and 50.0 for inventories. “The trend in economic reports from supply managers in our survey has been fairly positive since October of last year following some of the negative shipping impacts from Hurricane Katrina. Companies with strong ties to the state’s growing ethanol industry reported solid growth for February but were very optimistic about future economic growth for this sector,” said Goss.
Kansas: For the fourth consecutive month, the business conditions index from the survey of supply managers and business leaders in Kansas declined. The index, a leading economic indicator, inched lower to 50.2 from January’s 52.8 and December’s 53.5. Components of February’s index were: new orders at 46.9, production at 50.0, delivery lead time at 53.1, employment at 56.3and inventories at 56.3. “Non-durable goods manufacturers, especially food processors, reported much softer economic conditions for the month. On the other hand, durable goods producers detailed solid, but not spectacular conditions for February,” said Goss.
Minnesota: The business conditions index from the survey of supply managers and business leaders increased for the third consecutive month reaching its highest level since September of 2005. The index, a leading economic indicator, rose to 59.6 from January’s 58.0 and December’s solid 55.4. Components of the overall index for February were: new orders at 60.4, production at 60.8, delivery lead time at 55.7, inventories at 60.8 and employment at 59.4. “Companies reported rising delays, especially related to rail shipments. Additionally, companies with close linkages to alternative energy production indicated in their comments that they expect this sector to grow at a brisk pace for the forseeable future,” said Goss.
Missouri: For the second consecutive month, Missouri’s business conditions index from the monthly survey of supply managers and business leaders strengthened. The index rose to 56.2 from January’s 55.5 and December’s 54.8. Components of the overall index from the February survey were: new orders at 61.3, production at 59.7, delivery lead time at 50.0, inventories at 54.2 and employment at 50.0. “Survey results, while somewhat weaker than the rest of the nation, continue to point to growth for Missouri in the months ahead. Of course challenges and opportunities related to automobile industry restructuring will be an important driver in the near and intermediate term,” said Goss.
Nebraska: For the second time in five months, the overall index from the monthly survey of supply managers and business leaders in Nebraska increased. The index, a leading economic indicator, advanced to 59.8 from January’s 55.7 and December’s solid 55.4. February readings for components of the overall index were: 61.8 for new orders, 62.0 for production, 56.6 for delivery lead time, 56.6 for inventories and 60.4 for employment. “Despite the announced closure of the two Tyson plants, Nebraska's confidence index stood at a regional high of 70.2. Certainly, the rising fortunes of the state’s ethanol and renewable energy industry have buoyed businesses in this industry or firms with close ties to this industry,” said Goss.
North Dakota: North Dakota's overall index from the February survey of supply managers and business leaders rose briskly after falling for two of the last three months. The index, a leading economic indicator, climbed to 61.0 from January’s 54.2. Components of the overall index for February were: new orders at 64.7, production at 61.8, delivery lead time at 73.5, employment at 44.1 and inventories at 63.3. “Businesses in North Dakota definitely benefited from much warmer weather for the month according to comments from businesses in our survey. It is difficult to separate out the impacts of weather from more fundamental economic factors, but even so, our survey still points to solid growth in the months ahead,” said Goss.
Oklahoma: For the first time since November, Oklahoma’s business conditions index declined. The index from the monthly survey of supply managers and business leaders, a leading economic indicator, declined to 55.9 from January’s 66.5 and December’s 59.5. Component readings for February were: new orders at 63.5, production at 50.1, delivery lead time at 59.1, inventories at 45.5 and employment at 54.5. “Of course the loss of the 2,400 GM jobs will hurt the Oklahoma and Oklahoma City economies. However, given the provisions of job banks, the full force of the negative impacts will not be felt until 2008. In the interim, our survey points to solid growth with positive job gains in the months ahead for Oklahoma's economy,” said Goss.
South Dakota: South Dakota's business conditions index from the monthly survey of supply managers and business leaders rose to a regional high of 69.9 from January’s 66.5. This was the second straight month that the leading economic barometer has risen. Components from the February index were: new orders at 71.9, production at 78.1, delivery lead time at 56.3, inventories at 60.0 and employment at 71.9. “As in much of the region, weather played an important role in pushing the state’s index higher. Businesses in South Dakota reported undertaking and completing construction projects for the month that would ordinarily have been sidelined until Spring,” said Goss.
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